Asset Management Partner Paulita Pike Discusses SEC Fund Valuation Rule Proposals in Compliance Reporter

In The News
April 23, 2020

In an April 22 Compliance Reporter article titled SEC unveils first update to fund valuation rules in 50 years,” and April 23 Fund Directions article titled “SEC issues rule proposal allowing boards to assign valuation duties to advisers,” asset management partner Paulita Pike discusses how the proposals establish a framework for fund boards to determine the fair value of hard-to-measure securities, and formally permit valuation duties to be delegated to third-parties and investment advisers.

“The proposal does a nice job of encouraging boards to begin their reviews at a 10,000-foot level, with the notion that fair valuation should be viewed through the lens of risk,” Paulita said in Compliance Reporter. “While there are certainly boards that have had a risk- based approach to valuation already — especially among larger firms with a lot of subadvisers — that kind of lens is not necessarily something that has been universal before now.”

“Prior pronouncements had already made clear that day-to-day valuation could be delegated to third-parties and advisers,” Paulita highlighted. But “having that concept embedded in a rule, as opposed to guidance, with the color the adopting release provides, means there will be a lot to think about when the final rule is adopted … and conflicts will likely end up more explicitly addressed in valuation policies and procedures.