While the closing of the hedge fund at Dillon Read was due to the difficulty in valuing subprime mortgage-backed holdings, the problem of fair valuation is permeating a wide number of other hedge funds and mutual funds, The Wall Street Journal reports.
In fact, the prices for far less than half of securities traded on exchanges are readily available, according to Daniel Harris, an analyst with Goldman Sachs.
Certainly, Warren Buffet has long called for more price transparency. “Some markets can be pretty imaginative. They call it ‘marking to market,’ but it’s really marking to myth.”
Commenting on the lack of available prices on bonds, typically published in what is known as the “daily axe” or “daily run,” Greenwich Associates Consultant Timothy Sangston said, “There is a general reluctance on the part of dealers to be publishing prices, because it is so uncertain and there is not a lot of liquidity.”
The Securities and Exchange Commission is now examining how mutual funds value their securities.