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New SEC Rule on Fair Value Determination Needs Careful Consideration

Aimed at modernizing valuation practices, the compliance date to meet the requirements of the new U.S. SEC Rule 2a-5 is closing in on 8 September. The rule guides registered investment and business development companies to build a principles-based approach to valuation. To comply with the new regulation, how can asset owners and fund managers improve transparency in asset valuations? We discuss the integral aspects of determining fair-value pricing and share insights to help prepare for compliance.

The first overhaul of the valuation process in a decade, the new rule shines a spotlight on the widespread use of third-party pricing services, stating that investors should select an effective pricing vendor with comprehensive services and data to meet Rule 2a-5's requirements. As fund boards and their advisers study its requirements, choosing a pricing and valuation vendor is paramount in guaranteeing service value and successful compliance.

This article discusses

  • A Principles-based approach to valuation
  • Three key aspects that pricing vendors can offer boards of directors at funds
  • Growing importance for data quality, coverage and clarity
  • Transparency for valuation assumptions, data, inputs and analytics
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