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Valuation of Alternative InvestmentsComparables and discounted cash flow form the mostly widely used methods to verify alternative investment (AI) returns and net asset value to meet the fair value reporting requirements under Topic 820. Another method that can be used is the Replicating Portfolio Test and Process, which is a very sophisticated "comparables" method supported by decades of academic study, widely accepted concepts of efficient market hypothesis, and arbitrage pricing theory. Today, with the explosion of publicly traded securities representing thousands of investment strategies, even the most opaque hedge funds can be replicated confidently, using a combination of securities that have completely transparent prices. The Replicating Portfolio Test and process utilizes publicly traded Level 1 assets to replicate the returns reported by the AI manager and allow for verifiable fair value reporting. 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. An Auditable Process of Alternative Investments Net Asset Value (NAV) Verification The dramatic rise in the number and value of illiquid securities held by pension funds, endowments, foundations and corporations has created heightened attention from both constituents and regulators. These sentiments and the more rigorous reporting requirements under Topic 820 have made it imperative that reported fair values are fully supported by an auditable and consistently applied valuation process that complies with the relevant reporting standards. A combination of the best practices set forth by the American Institute of Certified Accountants (AICPA) and DerivActiv's Replicating Portfolio Test and Process accomplishes best practices for 1) Pre selection due diligence, 2) Ongoing monitoring and surveillance, and 3) Verification of returns and Net Asset Value as required under Topic 820. Replicating Portfolio Test and Process 
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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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