CapitalMarket Pulse Completes Three-part Series on Alternative Investment Valuation with Dr. Stanley Feldman from Axiom Valuation Solutions

    MINNEAPOLIS, MN, March 10, 2010 /24-7PressRelease/ -- CapitalMarket Pulse, a leading podcast that covers the financial industry, recently completed a three-part series on alternative investment valuation with industry expert Dr. Stanley Feldman of Axiom Valuation Solutions.

The series covers the following areas:

Part 1 - Changed Level of Due Diligence Required of Fiduciaries
Part 2 - Five Myths about the Fair Value of Alternative Investments
Part 3 - Large Numbers of Private Equity Funds are Overstating Valuations

With the recent revision to Topic 820 (formerly FAS 157), finance professionals are learning that valuing Level 3 investments within complex portfolios like hedge funds and private equity funds isn't as simple as in the past. Dr. Feldman begins the series talking about how the level of due diligence required of fiduciaries has changed. Listen here.

Part 1 - Changed Level of Due Diligence Required of Fiduciaries
"Fiduciaries are responsible for other people's money and how this money is invested. So this responsibility has not changed. What has changed is the level of due diligence that fiduciaries have to do or are responsible for, that's the major change. And the reason why that change is major is because there is a whole category of assets that endowment plans, retirement plans, are investing in which are termed alternative investments. And these investments tend to be opaque, in general, as opposed to transparent. So the burden put on the fiduciary is to understand what these assets are and how they're valued and in fact whether the valuations provided are accurate. So it puts an additional burden on them that they didn't have before. And it's a burden they can't send out to somebody else," stated Dr. Feldman.

Part 2 - Five Myths about the Fair Value of Alternative Investments
Dr. Feldman dispelled some commonly held myths about Topic 820 (FAS 157) in the second podcast about fair value. The myths are: 1) alternative investments do not include traditional asset classes; 2) auditors have not required that Topic 820 (FAS 157) standard be rigorously applied to pension funds; 3) asset classes like alternative investments represent a small percentage of a fund's portfolio; 4) we do not need to do fair value on our alternative investments since we don't intend to sell these assets; and 5) applying the standards of Topic 820 (FAS 157) is expensive relative to the incremental benefits derived.

Part 3 - Large Numbers of Private Equity Fund are Overstating Valuations
"It's pretty clear that a fairly large number of private equity funds do misreport. Misreport could emanate from a variety of different sources. There isn't an independent third party coming in and valuing, looking at what methods that the private equity managers are using to value their portfolios. Yes, they're audited, but the auditors aren't doing valuations. So if a manager has an option to value a certain investment in a particular way that is favorable to the manager, but yet doesn't violate what we would consider ethical guidelines as it relates to valuation, the issue then becomes that they probably overvalued something and if an independent third party came in they probably would say that value is too high. I would say that based on our experience, in terms of doing this work, that for every 100 interests that we value, there are probably 20% of those that are questionable," commented Dr. Feldman.

"Fair value is not a new concept, but as Topic 820 reporting requirements have been expanded to include most organizations, independent valuation from a third party is essential to proper reporting. This is increasingly important in the hard-to-value alternative investments," said Dr. Feldman.

MuniPulse Podcasts
The MuniPulse Podcasts, which include CapitalMarket Pulse, MuniMarket Pulse and MMA MuniCast, have over 4,300 listeners across the financial industry, from issuers to investors. These podcasts are the most listened-to independent podcasts on the Internet today. Guests have included underwriters, hedge funds, broker-dealers, economists, government issuers, associations and non-profits. Since its introduction, DerivActiv LLC, an independent valuation company, has been the primary sponsor.
For more information visit www.derivactiv.com or e-mail [email protected]

About DerivActiv
DerivActiv, LLC is a leading provider of web-based derivative valuation and other financial monitoring services, serving financial institutions, corporations, non-profits, and municipalities. DerivActiv provides daily valuations of financial products, including equity, currency and fixed income securities and derivatives. DerivActiv is used for FAS 133, Topic 815 (FAS 161),Topic 820 (FAS 157), GASB 53 compliance in financial statements, board and finance committee reports, and as an internal risk management tool. For more information call 1-866-200-9012, or visit the company's website at www.DerivActiv.com.

About Axiom Valuation
Axiom Valuation Solutions is a nationally recognized financial security and business valuation firm. The company has conducted valuation assignments for clients throughout the U.S., Europe and Asia. The company's rapidly growing practice in Valuation for Financial Reporting provides expert and cost-effective services for recurring valuations required by Topic 820 (FAS 157), FAS 141R/142, FAS 123R, and IRS 409A. Axiom Valuation clients include leading hedge fund and private equity firms, and the company's valuation services have been reviewed and approved by leading accounting firms. For more information, visit the company's fair value website at www.fairvalue157.com.

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