Facing valuation challenges

What are the main challenges fund administrators face in verifying valuations to calculate NAV/AUM? How are administrators valuing illiquid instruments and what are the problems they face? Will the increase in illiquid instruments be a major factor only in the short to medium term, or will it have a longer-term impact for future valuation?

The main challenges relate to valuations of private securities, over-the-counter (OTC) securities and thinly traded securities, according to Sharon Grosman and Brendan Conlon at SGGG Fexco. Generally, they say administrators value these instruments based on the policies set out in the legal offering documents.

Problems arise when the values provided are reviewed and are found to be inconsistent with available information or with values provided by other investment managers of other funds. This