Valuation by private fund managers remains a focus of SEC attention for its effect on performance, the fees payable to managers and the price at which investors enter and exit a fund. As it relates to illiquid or thinly traded assets, this exercise is particularly nettlesome. In a recently settled enforcement proceeding, the SEC asserted that, in contravention of its funds’ governing documents and valuation policies, a registered investment adviser and one of its principals ignored for valuation purposes its own trades in certain assets. Instead, the adviser favored the higher valuations provided by a third-party pricing service that did not use actual market inputs, resulting in a significant overvaluation of those securities. For another recent action in which a manager improperly used pricing service marks instead of actual trades, see “SEC Settlement With PIMCO Highlights the Importance of Proper Valuation and Performance Disclosures” (Dec. 8, 2016). This article summarizes the valuation practices that the SEC challenged, the sanctions imposed and the other relevant terms of the settlement order. For additional coverage of the SEC’s recent attention to valuation of illiquid assets, see “Hedge Fund Platinum Partners and Principals Face Civil and Criminal Proceedings From SEC and DOJ Over Alleged Fraudulent Valuation Practices and Liquidity Misrepresentations” (Jan. 12, 2017); and “SEC Continues to Focus on Insider Trading and Fund Valuation” (Jun. 30, 2016).
Apr. 20, 2017
-
TOPICS
-
ENTITIES
-
PEOPLE
Failure to Consider Relevant Market Inputs When Valuing Assets May Draw SEC Enforcement Action Against Fund Managers
- Vincent PitaroPrivate Equity Law Report
To read the full article
Continue reading your article with a PELR subscription.
Other Valuation Articles
-
Oct. 13, 2020
Independent Valuation Firms: Tips for Overseeing the Process and Resolving Disputes Over Conflicting Valuations (Part Three of Three) -
Oct. 6, 2020
Independent Valuation Firms: Rising Prominence of Third‑Party Valuations and Factors to Consider When Engaging a Firm (Part Two of Three) -
Sep. 29, 2020
Independent Valuation Firms: As Scrutiny of Valuations Grows Throughout the Industry, so Does Their Importance (Part One of Three) -
Jul. 21, 2020
Eye of the Storm: Q2 Valuations of Real Estate, Energy and Other Asset Classes During the Coronavirus Pandemic (Part Two of Two) -
Jul. 14, 2020
Eye of the Storm: Q2 Valuations of Private Debt and Equity During the Coronavirus Pandemic (Part One of Two)