29th July 2014
The Alternative Investment Fund Managers Directive (“AIFMD”) came into full force on 22 July 2014. One of the many significant provisions contained within the AIFMD regulations is the requirement that the valuation function for funds must now either be performed by the investment manager itself or alternatively performed by an external valuer.
At Centaur, we believe that the well-meaning intention by the drafters of this provision is to improve investor protection in Europe with the ultimate goal of preventing market instability. However, institutional investors have expressed their serious concerns to us about this aspect of regulation.
How do Institutional Investors view the new regulatory changes?
Centaur assists and advises clients on every aspect of regulation, including AIFMD, and has interviewed institutional investors about their thoughts on the new valuation process. The overwhelming reaction from institutional investors we have spoken to has been disbelief that the European regulators are requesting the valuation process to be performed by investment managers. There remains a strong and clear desire that valuation continues to be performed by independent third party administrators.
How are Fund Administrators dealing with the External Valuer Role?
This view of investors has been heard clearly by fund managers who are taking steps to ensure that fund administrators continue to perform the valuation role. However, this task is proving difficult as many fund administrators will not accept an appointment as External Valuer due to concerns of increased levels of liability.
Centaur’s view is that valuation of fund assets is a key part of what fund administrators are paid to do. Centaur is happy to be appointed as External Valuer to funds that hold Level 1 and 2 assets and is confident that its robust infrastructure and experience will provide funds, investment managers and investors with the accuracy and transparency now needed under AIFMD. With regard to Level 3 assets, Centaur believes that the model of specialist valuation committees comprising members from the Investment Manager’s staff and independent fund board members, which in many cases is already in place, remains the best way to provide accurate valuations for these less liquid assets.
“We understand that Centaur’s position is in marked contrast to many fund administrators who are refusing to accept the responsibility of being appointed as External Valuer due to concerns about increased levels of liability,” says Karen Malone, Managing Director of Centaur Fund Services. “The challenge for the industry is to meet the investor demands for a clear separation of the valuation process from investment managers, while complying with AIFMD. Centaur fulfils both needs by offering clients independent, impartial valuation services from an experienced team who expressly contract to be accountable.”
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