Alternative Investment Valuation for Compliance

Previously known as FAS 157, ASC 820 requires that alternative investments be valued at fair value using a process that is acceptable under ASC 820. If alternative investments are complex and/or illiquid investments, determining fair value can be hard to determine independently.  Usually, the asset investment manager or the custodian of the alternative investment provides a value that most investors simply accept at face value.  It is the fiduciary responsibility of management to provide an accurate financial report to its shareholders.  In order to do this, management must have sufficient information to evaluate and, and in some cases, challenge the valuations provided.

Management must have a sufficient understanding of:

• The underlying investments
• The portfolio strategy of the alternative investment(s)
• The method and notable assumptions used by the fund manager to value the underlying investments

Fiduciaries that need transparent alternative investment valuation assistance should call DerivActiv at 822-200-9012.

DerivActiv can help investors/fiduciaries comply fair value standards because we employ a portfolio simulation process that uses investment types, strategies, and assumptions (similar to those of the asset managers) to choose publicly traded look-alike assets to verify alternative investment values.  A clear and transparent trail can be followed, which allows auditors to sign off on a process that is considered compliant with ASC 820.

Furthermore the portfolio simulation process allows fiduciaries/investors to:

• Establish an iterative process for determining fair value measurements and disclosures
• Select and utilize an appropriate valuation methodology supported by academia, auditors and arbitrage pricing theory
• Identify and support any notable assumptions used by asset managers in preparing their valuations
• Have confidence that their presentation and disclosure of the fair value measurements are in accordance with generally accepted accounting principles (GAAP)

Call DerivActiv at 1-866-200-9012 if your organization needs help with the valuation and reporting of alternative investments under ASC 820.