Valuation Practices In The Hedge Fund Industry

Some valuation best practices have been widely adopted by the hedge fund industry, and while not universal, have become "standard" industry practice. Others have yet to be widely adopted. For example, while 78 percent of survey respondents reported using a third party administrator or other third party to provide their official net asset valuation, only 47 percent reported that they engaged a third party to provide independent pricing validation. For investors, this means they need to carefully review valuation practices before investing—and continue to monitor those practices once an investment has been made. Hedge fund advisers that have not yet adopted some best practices need to evaluate if they should adopt these practices in order to continue to attract investors and satisfy regulators.
There is very little uniformity in the valuation of various complex or illiquid assets. The lack of uniform accepted pricing methodologies reinforces the need for independent pricing validation.
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