Deloitte's 8th Annual Fair Value Pricing Survey Reveals Asset Manager Commitment to Valuation Stays Strong Despite Streamlined Operations

While a Weaker Market Environment Spurred Headcount Reductions and Other Cost Saving Initiatives, Asset Managers Kept Valuation a Top Priority

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Deloitte

Mar 22, 2010, 09:11 ET

NEW YORK, March 22 /PRNewswire/ -- As a decline in revenue and assets under management forced asset managers to reduce funding and headcount for operations and focus on managing capital during 2009, commitment to robust valuation programs from managers and their boards remained unchanged, according to Deloitte's 8th Annual Fair Value Pricing Survey, released today.

"Asset management, like many other industries, faced tough decisions in terms of funding and headcount, creating a 'work smarter, not harder' paradigm. Shrinking resources coupled with an increased focus on the core business of money management and more regulatory focus, and it would be easy for program gaps to appear and risks to sneak in. But for asset management, the industry remained dedicated to maintaining strong valuation and risk management programs, according Deloitte's Fair Value Pricing Survey results," said Cary Stier, Deloitte's U.S. asset management services leader.

"The survey revealed continued increases in pricing challenges, use of certain internal pricing models, an uptick in internal teaming to assess valuation and overall governance including independent director 'real-time' participation during 2009 – all trends that reflect the diligent approach the industry has adopted with respect to valuation. Asset managers accomplished this by relying on existing resources like portfolio managers and traders and, in some cases, improved technology that resulted in more automation," said Paul Kraft, Deloitte's fair value survey leader.

Other key survey findings include:

More than 20 percent of survey participants indicated that independent trustees have been consulted on a "real-time" basis in reaching a fair valuation decision.

Approximately 97 percent of participants indicated that they have challenged valuation(s) by the primary pricing vendor. Almost 34 percent have been issuing price challenges daily.

Seventy-two percent of survey participants indicated they believe pricing services provide more reliable valuation than brokers.

When performing due diligence on pricing sources, 81 percent of survey respondents ask their pricing services and brokers whether prices reflect the most recent transactions, an increase of 22 percent from the prior year.

Eighteen percent of respondents use the last available market price when a small cap security price is stale compared to 39 percent the year prior.

Seventy-nine percent of respondents indicated that they used a pricing vendor as the primary source for interest rate swaps and credit default swaps.

More than 90 percent of survey participants indicated that they had not used a credit valuation adjustment as a result of counterparty risk when determining the price of a derivative contract.

Sixty-seven percent of survey participants offering index funds indicated that they apply fair valuation procedures, and 30 percent of those offering passively-managed ETFs noted that they apply fair valuation procedures.

The most common internal controls over valuation performed daily include the comparison of daily prices to prior day prices, review of stale pricing reports, use of secondary pricing source, and asking portfolio managers and traders to review the markets for any market or issuer specific events that may not be considered by the primary pricing provider.

The survey of 67 asset managers, who collectively advise more than 3,000 mutual funds with more than $2.2 trillion in assets under management, was conducted at the end of 2009.

To learn more about Deloitte's Fair Value Pricing Survey, please view the Portfolio Valuation: NAVigating New Territory? webcast, at http://www.deloitte.com/us/PortfolioValuation.

To see a copy of the report, please visit http://www.deloitte.com/us/fairvalue or http://ow.ly/1liyX.

About Deloitte

As used in this document, "Deloitte" means Deloitte LLP and Deloitte Services LP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.