A stable, well-functioning financial market for allA stable, well-functioning financial market for allValuation of unlisted holdings in investment funds
Finansinspektionen can conclude that there is a need for broader guidance in terms of the fund management companies’ routines to valuate assets that are not traded on a regulated market.
FI will take the following measures
We are going to broaden and clarify our guidelines for how to valuate assets that are not traded on a regulated market (unlisted holdings). In our ongoing supervision, we will also follow up how fund management companies market valuate their unlisted holdings.
In connection with this report, we are publishing a proposal for guidelines that the industry has an opportunity to comment on. The new guidelines will be published in June 2008.
The investigation
The purpose of the investigation is to survey the companies' routines and methods to valuate their unlisted holdings. The survey will include 30 fund management companies and investment firms.
The valuation of investment funds' holdings is crucial to investment fund operations. It provides the basis for the unit prices and the management fee that investment fund savers have to pay. In connection with performance-based management fees, small differences in the valuation of assets provide a relatively large effect on the fees charged.
The valuation is also a pre-requisite for functioning risk management. In the Investment Funds Act and in Finansinspektionen's regulations regarding investment reserves, there are regulations for valuation of unlisted holdings.
Several of FI's sanctions against fund management companies have covered how the fund management company has valuated its unlisted holdings. Among other things, the sanctions have been based on the fact that such shortcomings have been identified in the fund management's organisation and valuation routines for unlisted holdings that a market valuation has not been done. Only through a market valuation can the shareholders be ensured of having the same rights to the investment funds' assets.
The investigation shows that fund management companies have routines and guidelines for valuation of unlisted holdings. The fund management companies are working, however, with valuation in partially different ways and are requesting guidance in this area.
There is an existing need for broader guidance in various aspects of the fund management companies' valuation work:
- Independence and competency in the valuation work
- Outsourcing valuation
- Valuation principles
- Valuation frequency
- Documentation
