Paladyne Systems and its partners Thomson Reuters and NumeriX are releasing a white paper in response to the President's Working Group on Financial Markets (PWG) which they view as a call to the industry to come together in a constructive manner to define consistent pricing and valuation standards.
The paper, available at http://www.paladynesys.com/NewsArticles/ValuationsPricing-PaladyneFinal.pdf, addresses the issues hedge funds face with pricing, operational transparency and fiduciary leadership. The paper takes the position that it is not just the hedge fund manager's responsibility to define and adhere to valuation and pricing standards, but that service providers, data and technology vendors and software analytics providers should all participate in a concerted effort to effect achievable change across the industry. This stance goes beyond the PWG's recommendations and puts the onus back on the hedge fund managers.
Some of the key points in the paper include a look at current flawed pricing methodologies, due to the high degree of variance by individual managers, and the fact that the underlying securities in a hedge fund's portfolio may not reflect the most accurate market values. It also looks at the need for robust technology and operational processes to accurately and consistently value these securities across the industry. Additionally, it addresses the problematic mark-to-model methodologies.