AIMA COMPLETES FIRST GLOBAL SURVEY OF HEDGE FUND ASSET PRICING AND VALUATION PRACTICES

Recommends Enhancing Industry Practices to Serve Investors, Industry  

LONDON, 27 April 2005 — The Alternative Investment Management Association (AIMA), the leading global hedge fund and alternative investment industry association, today announced the results of the first comprehensive global survey of hedge fund asset pricing and valuation practices.

 This survey was conducted by AIMA and sponsored by PricewaterhouseCoopers, Bisys, CITCO, Financial Risk Management (FRM) and Fauchier Partners.  This survey measured the views of investors, hedge fund managers and hedge fund service providers regarding issues surrounding the valuation of assets held in hedge fund portfolios, with particular emphasis on harder-to-value assets.

 The survey � �Asset Pricing and Fund Valuation Practices in the Hedge Fund Industry� � also includes recommendations for increasing the understanding of different approaches to pricing and valuation and enhancing existing practices and procedures within the industry.  The Executive Summary can be viewed at http://www.aima.org/uploads/AIMAAssetPricingandFundValuationintheHedgeFundIndustry.pdf

 Among the key findings:

�               32% of respondents report that the pricing of illiquid instruments represents the most significant challenge with regard to portfolio valuation; 

�               Hard-to-value instruments represent only 14% of the aggregate value of the funds managed by respondents;  

�               73% of hedge fund respondents have an independent administrator to provide NAV; 

�               65% of all respondents have a value error tolerance that their firm uses before re-calculating NAV;

�               93% of administrators are fully independent from the manager;

�               There is a general desire to enhance valuation practices and procedures.

Segun Aganga, Chairman, AIMA Alternative Investment Research Committee, said:

 Ã¯Â¿Â½This research is the result of the Industry�s commitment to ensure that investors� interests are protected, as well as a desire by the industry to continue to improve its practices. I am proud that AIMA has been able to lead the first global survey of this kind containing the views of principal industry participants including investors, hedge fund managers and service providers.�  

 Ã¯Â¿Â½We believe that the results of this research will be a useful resource to hedge fund managers and investors.  It is an important step in the development of the most sound industry practices to value hedge fund assets.�

Segun Aganga added:

�Based on the findings of this survey, we have made several practical recommendations.  They are designed to increase the common understanding of approaches taken to pricing and valuation, and enhance existing practices and procedures within the industry.�

�73% of hedge fund managers support focusing on pricing and valuation issues.  We believe that this study highlights the fact that the industry is continuing to embrace enhancements in this area.�

The main recommendations are:

�                     A summary of practical and workable pricing and valuation practices and procedures should be documented, approved by the board of directors, trustee or general partner of the fund and reviewed on a regular basis; 

�                     The fund offering document should explicitly describe the potential limitations of valuation and pricing practices;

�                     The NAV of the fund should be produced by parties who are not involved in the investment process of the investment management entity;

�                     Pricing and valuation policy should be formalized in advance of fund launch and should be adequately described in the fund�s offering document;

�                     The pricing and valuation policy should explicitly clarify the role of each party in the valuation process; 

�                     The decision to use a pricing model rather than a market price in determining an asset value should be properly justified;

�                     Where necessary, NAV calculations should be subject to appropriate checks and balances;

�                     NAV reports should be addressed directly to investors by the administrator, where an administrator is used.

About the Survey

AIMA�s Alternative Investment Research Committee generated a detailed questionnaire, which was issued globally to institutional investors, managers and service providers (including prime brokers, administrators and auditors).  This was followed up with interviews with investors and industry participants in various parts of the world.  

Complete responses received during the course of the survey amounted to 76 questionnaires and 16 qualitative interviews, totaling 92 organisations that collectively manage US$58 billion and invest/allocate US$72 billion. . It is important to note that the administrator responses represent more than half the industry�s assets at US$420 billion.   *The geographical locations of respondents did not precisely match the spread of the industry.  The US hedge fund industry, for example, is under-represented, thus skewing response rates from the European and Asia-Pacific regions.

 Survey Available to Key World Regulators

The complete survey and Recommendations are being made available to AIMA members, key regulators, government agencies and all institutional investors on its confidential database at no cost and is available to non-members for a cost of �50, which will help defray expenses.   

 About AIMA

Founded in 1990, AIMA is a not-for-profit global trade association with corporate membership in 46 countries.  AIMA focuses specifically on hedge funds, managed futures and managed currency funds.  More than 840 corporate members (comprising over 2900 individuals) enable the Association to create global tools for the benefit of its members, institutional investors and regulators. Its objectives are to increase investor education, transparency and promote due diligence and related sound practices, and to work closely with regulators and interested parties in order to promote the responsible use of alternative investments. AIMA�s membership includes fund of funds managers, institutional investors, hedge fund managers, prime brokers, exchanges, fund administrators, auditors, lawyers and other specialist service providers. Please visit us at www.AIMA.org.

 For further information, please contact Emma Mugridge, AIMA, emma@aima.org or tel +44 (0)20 7659 9920

Emma Mugridge
Director
The Alternative Investment Management Association Limited (AIMA)
Meadows House, 20-22 Queen Street, London W1J 5PR.
Tel:  +44 (0)20 7659 9920
Fax: +44 (0)20 7659 9921
emma@aima.org