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.
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.
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.
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.
McVea, H. (2008), "Hedge fund administrators and asset valuations – does it all add up?", Journal of Financial Regulation and Compliance, Vol. 16 No. 2, pp. 130-141. https://doi.org/10.1108/13581980810869788Download as .RIS
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