Introduction

Valuing different instruments and products is integral in the financial services industry as it affects multiple parties involved in any given deal or transaction. In the recent past, there has been an increasing awareness and interest in independent third party valuation services. It is with this in mind that this section of the research report focuses on the organisation of, and approach to, valuations, and more importantly the role that risk has in this process at a number of buy-side firms

Key findings

• Current practice – The general trend appears to be one where risk is involved in the valuation process. Eighty percent of the interviewees confirmed that risk is involved at some point in the process. Naturally the extent of involvement and the exact role will vary by institution.
• Strategy – At the second firm, the only firm spoken to where at the moment there is currently no risk involvement as far as the UK is concerned, the possibility of migrating to more of a global approach to reflect the US and other European Offices, where the risk function is more involved, was acknowledged.
• Organisation – The interviewed firms were asked to indicate whether they use consistent or different methodologies for valuations of proprietary positions and valuations of funds where the firm is the investment manager. it is important to note that some of the firms spoken to do not have any proprietary positions.
• However, where the firms are investment managers for the most part and have proprietary positions as well, the general trend appears to be one of prudence, and consistency to a large extent.

Conclusion

The role that the risk team has in the valuations process will vary amongst the numerous players in the industry. However, it is abundantly clear from the testimony supplied by Lepus contacts, that the risk function is involved, at least to a certain extent at majority of the firms. Authorisation to go out of and not adhere to policy, providing oversight and advice, chairing committees, advising, communicating and interacting are just a selection of responsibilities that fall within the remit of the risk team.

To obtain a free copy of this section in full, please contact us at marketing@lepus.com with your name, job title, firm, phone number and email.

Tagged with: 2009, buy-side, risk, Risk Research Report, valuations