Article 71
Review of individual values of assets
1.
An AIFM shall ensure that all assets held by the AIF are fairly and appropriately valued. The AIFM shall document by type of asset the way the appropriateness and fairness of the individual values is assessed. The AIFM shall at all times be able to demonstrate that the portfolios of AIFs it manages are properly valued.
2.
The valuation policies and procedures shall set out a review process for the individual values of assets, where a material risk of an inappropriate valuation exists, such as in the following cases:
(a)
the valuation is based on prices only available from a single counterparty or broker source;
(b)
the valuation is based on illiquid exchange prices;
(c)
the valuation is influenced by parties related to the AIFM;
(d)
the valuation is influenced by other entities that may have a financial interest in the AIF’s performance;
(e)
the valuation is based on prices supplied by the counterparty who originated an instrument, in particular where the originator is also financing the AIF’s position in the instrument;
(f)
the valuation is influenced by one or more individuals within the AIFM.
3.
The valuation policies and procedures shall describe the review process including sufficient and appropriate checks and controls on the reasonableness of individual values. Reasonableness shall be assessed in terms of the existence of an appropriate degree of objectivity. Such checks and controls shall include at least:
(a)
verifying values by a comparison amongst counterparty-sourced pricings and over time;
(b)
validating values by comparison of realised prices with recent carrying values;
(c)
considering the reputation, consistency and quality of the valuation source;
(d)
a comparison with values generated by a third party;
(e)
an examination and documentation of exemptions;
(f)
highlighting and researching any differences that appear unusual or vary by valuation benchmark established for the type of asset;
(g)
testing for stale prices and implied parameters;
(h)
a comparison with the prices of any related assets or their hedges;
(i)
a review of the inputs used in model-based pricing, in particular of those to which the model’s price exhibits significant sensitivity.
4.
The valuation policies and procedures shall include appropriate escalation measures to address differences or other problems in the valuation of assets.