Alternative Investments Valuation

Previously known as FAS 157, Topic 820 requires that alternative investments be valued at fair value using a process that is acceptable under Topic 820, and these values are hard to determine independently. Usually, the asset investment manager or the custodian of the alternative investment determines a value that investors simply accept at face value. In the case of ERISA plans the Department of Labor holds management responsible for the proper reporting of plan investments. Management must have sufficient information to evaluate and independently challenge the valuation.

If you are interested in learning more about Topic 820 (formerly FAS 157), you can download a Topic 820 white paper here.

You can speak with a DerivActiv expert about alternative investment portfolio replication by calling: 1-866-200-9012.


Alternative Investments and APT - The Law of One Price

That means investors and fiduciaries must have a sufficient understanding of:

  • The underlying investments
  • The portfolio strategy of the alternative investment
  • The method and major assumptions used by the fund manager

When investors/fiduciaries employ the Replicating Portfolio Test and Process these requirements are met because investments, strategies and the asset managers assumptions are all utilized in choosing publicly traded look-alike assets to verify alternative investment values. A clear and transparent audit trail can be followed which allows auditors to sign off on a robust process.

Furthermore the Replicating Portfolio Test and Process allows fiduciaries/investors to:

  • Establish an iterative process for determining fair value
  • Select and utilize an appropriate valuation methodology
  • Identify and support any significant assumptions
  • Fair value measurements are in accordance with Form 5500.

    • A direct translation in to the Alternative Investment space is the following statement, "If one knows the fund objective, fund management style, geographic focus, asset classes, industry distribution and leverage of a target AI portfolio then a portfolio can be created that has the same risk/return characteristics as the target portfolio and therefore should be priced equivalently."




    Topic 820 Arbitrage Theory
    Topic 820 Due Diligence
    Topic 820 Porfolio Replication
    Topic 820 Porfolio Valuation
    Topic 820 Alternative Investments
    Topic 820 Valuation
    Topic 820 Investment Services
    Topic 820 Factor Loadings
    Topic 820 Fair Value Services
    Topic 820 Alternative Investments
    Topic 820 Verification
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