Proper valuations necessitated by market volatility (Hedge Fund Law Report)

The SEC continues to view the appropriate valuing of private fund assets, including those of hedge funds, to be a primary focal point in its oversight of firms during the pandemic. Amy Lynch, FrontLine’s Founder and President, explains that while market volatility has heightened current SEC scrutiny, it’s always been a critical area for the regulator. Ultimately, the value of assets leads to the value of the entire portfolio, which is then reflected in its overall performance. The view of the SEC, Ms. Lynch states, is one where overvaluing holdings leads to misleading higher performance numbers and in turn, creates harm to investors – and that can eventually lead to fraud. She also comments that valuation policies should plan for occurrences of technological issues such as a cybersecurity breach, where a pricing vendor’s feeds may be impacted and pricing information delayed. See Hedge Fund Law Report (subscription required), “Valuations: Crises May Require Deviation From Usual Procedures (Part One of Two)”