Successfully Addressing Key Valuation Issues for Hedge Funds by Renee Ford & Sean Hafezizadeh

1. Sean Hafezizadeh, CPA
Manager, Investment Operations
tel +1 949 261 4900
shafezizadeh@paamco.com
Successfully Addressing Key Valuation Issue for Hedge Funds
Renee Ford, CPA
Assurance Principal, Decosimo
423-756-7100
reneeford@decosimo.com

2. Results of exams
Revisit requirements
Valuation - what is the SEC looking for?

3. Examples
Using common sense
Sensitivity approach
Effectively handling and reducing risk of valuation errors

4. Revisit the definitions
Examples of where significant judgment is necessary
Redemption restrictions
Level 3 disclosure requirements
Level 2 vs. Level 3 Evaluating the differences

5. Level 2
Level 3
Extent of reliance on administrators
Extent of reliance on appraisers and investment managers
How are auditors testing valuation?

6. Support needed
Justify valuation
Managing nuances between auditor and third party administrator

7. “Trust but verify.”
Examples of models that deviate materially from the market
Scope of independent appraisers
IM’s interest in fund
Reliance on independent appraisers and investment managers

8. The “rubber stamp” approach
Recalculating the valuation
Using third party valuation services

9. Diffusion of responsibility
Collecting fees on material Level 3 assets
Controls over valuation of Private Equity positions
Lessons learned – GLG case

10. Questions?