New SEC Rule on Fair Value Determination Needs Careful
Consideration
Aimed at modernizing valuation practices, the compliance date to
meet the requirements of the new U.S. SEC Rule 2a-5 is closing in
on 8 September. The rule guides registered investment and business
development companies to build a principles-based approach to
valuation. To comply with the new regulation, how can asset owners
and fund managers improve transparency in asset valuations? We
discuss the integral aspects of determining fair-value pricing and
share insights to help prepare for compliance.
The first overhaul of the valuation process in a decade, the new
rule shines a spotlight on the widespread use of third-party
pricing services, stating that investors should select an effective
pricing vendor with comprehensive services and data to meet Rule
2a-5's requirements. As fund boards and their advisers study its
requirements, choosing a pricing and valuation vendor is paramount
in guaranteeing service value and successful compliance.
This article discusses
- A Principles-based approach to valuation
- Three key aspects that pricing vendors can offer boards of
directors at funds
- Growing importance for data quality, coverage and clarity
- Transparency for valuation assumptions, data, inputs and
analytics
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