Valuation, Liquidity and Derivatives Workshop



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Morning Session

On a chilly February morning, nearly 50 delegates from the US mutual fund industry gathered at the Marriott Marquis in New York’s iconic Times Square to discuss some pressing regulatory issues for the coming year. This included representatives of Calvert, Columbia Threadneedle, Dimensional, First Eagle, Franklin Templeton, The Hartford, Henderson, Invesco, K2 Advisors, Legg Mason, Loomis Sayles, MFS, Russell Investments, TIAA-CREF and a number of legal, audit and administration firms supporting them. Industry associations were represented by the Investment Company Institute and SIFMA.

The morning session of the Workshop concentrated on fund valuation issues and the important new SEC guidance provided in Release 33-9616. Ron Feiman of Kramer Levin gave a useful overview of the development of valuation rules and regulations over recent years, reviewing the various releases and important enforcement actions. He also looked at the implications for fund directors from the most recent release in the wake of the Morgan Keegan case.

Rajan Chari of Deloitte then presented the main results and implications of their 2015 Fair Value Pricing Survey. This 13th such survey of mutual funds represents an extremely valuable record of the practical steps fund boards and advisers have taken to comply with the changing fund valuation landscape.

Voltaire Advisors looked in detail at the statements in 33-9616 on the use of pricing services. Whilst much of the valuation guidance to funds in this release is a reminder of previously issued rules, this explicit focus on pricing vendors is new and very welcome give the ubiquity of such services in mutual fund NAV calculation.

Karl Mackelburg from one such pricing service, Thomson Reuters, then gave us a sense of the kind of due diligence activity they experience from their fund clients, ranging from price challenges to fund board presentations.

Rounding off the morning session, our panel discussion on Valuation had Ron and Karl joined by Chris Franzek from Duff & Phelps to look at some of the key issues. We focused on whether the new guidance has required fund boards or their advisers to change their approach to fair valuation, and if so, how.

Afternoon Session

After lunch the Keynote address was given by Norm Champ, newly announced as a partner at Kirkland & Ellis and formerly Director of the Division of Investment Management at the SEC. Norm was chief architect of the Money Market Reforms of 2014, and gave us an insiders insight into the SEC thinking on current regulatory initiatives and his opinions on what we can expect for this year.

Norm was followed by Nathan Greene from Shearman & Sterling, who reviewed the Liquidity Management rules proposed in 2015, the comment period on which had just recently closed. Nathan analyzed the industry comments to the proposals, concluding that they displayed extensive disquiet about some of the measures.

Chris Franzek from Duff & Phelps then looked at whether the liquidity proposals would have an impact on fund valuation. His comparison of these with FASB accounting rules suggests a tension and some definitional confusion that will need to be resolved.

In our Liquidity panel session, Nathan and Chris were joined by Varun Pawar of Bloomberg to discuss whether these proposals were desirable or even possible.

In the final presentation, Jay Baris from Morrison & Foerster assessed the most recent set of SEC proposals on derivative usage by mutual funds which came out in December. He was by no means convinced that these rules would be implemented in the form first suggested and cautioned that they will still at a very early stage of development.

Closing the Workshop, Jay was joined by Kent Knudson of PwC on the panel discussing the Derivatives proposals, and their implications for fund boards and advisers.

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