Given its complex nature, the pricing of portfolio positions often involves a great deal of time-consuming work, beginning with data collection to rules application and pricing tests. Even in a normal market environment, this process is no easy task. As we have entered an entirely new dynamic with increased trade volume and market volatility, pricing and valuation teams are under an immense amount of pressure to accurately value their securities.

Funds are pricing hundreds, sometimes thousands, of instruments in dozens of portfolios that require inputs from multiple market data vendors and broker quotes. For more exotic asset classes, highly illiquid securities or mark-to-model securities, pricing can be a much more complicated endeavour where values are challenged constantly. During this process of challenging a price, pricing and valuation teams must reach out to the vendor or broker to explain their rationale for contesting. In fact, a typical hedge fund will challenge between 10% and 30% of quotes in any given month.

In today’s environment, pricing and valuation teams have undoubtedly seen an increase in challenges. Market volatility has increased the bid-ask spread and getting accurate quotes from market makers has proven to be a difficult task. Tracking and updating these prices with revised quotes is a significant burden on pricing and valuation teams due to the fact that the process is predominately manual for many funds, making it difficult to keep a clean audit of revised prices. Over time, these pricing and valuation teams have developed highly customized spreadsheets for each category of securities to make the process easier but, in reality, they have ended up creating a situation fraught with risks and hurdles such as:

  • Delay in publishing the fund’s NAV
  • Inability to handle the pricing of new asset classes and securities in a timely manner
  • Limited timeframe to acquire prices
  • Difficulty in handling quotes from multiple sources
  • Inability to link the quotes to internal securities
  • Complexity running pricing tests
  • Auditing pricing quotes and commentary
  • Generating a time-series analysis of prices
  • Manually publishing prices in the accounting system

Pricing and valuation is a complex process that varies greatly from fund to fund. Manual processes are no longer acceptable for regulators, large investors and allocators, especially amid the challenges we’re facing today. With a lack of pricing automation, pricing and valuation teams will spend a majority of their time dealing with mundane, manual logistics rather than providing meaningful insights to the valuation committee.

Exploring pricing automation sooner rather than later will put forward-thinking funds in a stronger and more competitive position. By implementing an automated pricing solution, pricing and valuation teams will have more time to identify problematic prices along with seamless access to a recent history of pricing data to start the investigation. With this, the potential gains in efficiency and risk management are difficult to ignore.

IVP’s Pricing and Valuation Automation Solution enables funds to take the complexity out of pricing. Providing funds with end-to-end pricing automation, this solution efficiently retrieves data from vendors and brokers, applies waterfall pricing rules and ensures that prices meet their respective threshold checks. It’s connected to all leading pricing data vendors and brokers, providing a flexible and configurable pricing engine that caters to the needs of any type of pricing process.

To learn more about IVP’s Pricing and Valuation Automation Solution, visit https://www.ivp.in/products/pricing-and-valuation-automation-solution/ or contact sales@ivp.in.

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