Hedge fund administrators and asset valuations – does it all add up?

Harry McVea

Journal of Financial Regulation and Compliance, 2008, vol. 16, issue 2, 130-141

Abstract: Purpose - The purpose of this paper is to assess the role of hedge fund administrators, particularly in relation to valuing complex and/or illiquid financial instruments. Design/methodology/approach - The paper proceeds by way of an analysis of key trends and developments within the hedge fund administration industry in relation to the regulatory challenges posed by complex and/or illiquid instruments. Findings - The paper argues that, because of inherent problems over the attribution of value to complex and/or illiquid assets, emphasis on independent valuation by administrators is largely misplaced. Recent events concerning valuation difficulties in the subprime mortgage market illustrate these very concerns. Originality/value - The paper questions the ability of independent hedge fund administrators to provide reliable valuations for complex and/or illiquid instruments. Independent valuation of such assets suggests a level of scrutiny that is in fact not present. Moreover, the financial market meltdown surrounding the collapse of the subprime mortgage market provides a timely and salutary reminder that independent valuations of complex and/or illiquid instruments are inherently unreliable.

Keywords: Hedging; Fund management; Asset valuation (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:v:16:y:2008:i:2:p:130-141

DOI: 10.1108/13581980810869788

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