Not all asset managers that run foreign funds use fair valuation to determine the true value of their underlying holdings, a survey of 77 investment firms by Deloitte & Touche.
Only 84% have set systems for fair valuation when there has been a significant movement in overseas markets or an event that would trigger fluctuations, and only 55% use foreign currency exchange rates as of 4 p.m. ET each day to translate the market values of foreign securities.
However, more funds are using fair valuation for thinly traded sectors, such as small-cap and fixed-income funds, along with exotic types of investments, such as those that focus on structured notes, swaps or other derivatives and private placements, Deloitte found. Thirty-three percent of advisors use fair value when significant events might impact their domestic fixed-income holdings, and 38% do so in cases involving derivatives.
"Fair valuation for foreign equities has come of age, as most asset managers now have established procedures in place," said Paul Kraft, deputy managing partner of Deloitte's investment management industry group. "The challenge is now for firms to continue raising the bar in other asset classes."
Despite the fact that fair valuation is required by SEC regulations, funds are split on whether to involve their chief compliance officers in the process. For 38% of advisors, the CCO sits on the fair valuation committee, but at 30% of the firms, they are not involved. In addition, only 13% of boards monitor fair valuation each time it is applied, while 71% conduct such reviews at quarterly board meetings.