IVP Pricing and Valuation Solution

What is pricing and valuation in a buy-side firm?

Determining the price of every position in a portfolio is one of the most important functions asset managers perform. Accurate prices and valuations are the only way to measure alpha, which helps firms assess strategies and helps investors remain confident.

Why is pricing and valuation more complex for buy-side firms today?

Traditional pricing methods are complicated because they involve manual data gathering, rule application, and price testing. For more exotic asset classes, highly illiquid securities, or mark-to-model securities, pricing is even more complicated. Manual spreadsheets compound the issue.

How is pricing different across listed, OTC, and illiquid securities?

The difference is the data involved in each process. Listed securities involve market prices, broker quotes, evaluated values, and internally generated prices. Valuation of over-the-counter instruments involves broker quotes, models, and negotiated inputs. Illiquid assets with limited market activity require broker quotes, models, or assumptions to derive valuations.

What risks arise from manual or spreadsheet-driven valuation processes?

Manual or spreadsheet-driven valuation processes are more time-consuming and error-prone than automated processes, and any inaccuracy creates risk. In addition, spreadsheet-based processes are especially difficult to scale as the number of investments held starts to rise.

When should a firm consider automating pricing and valuation workflows?

Pricing automation should be a key consideration for any firm that wants to eliminate the most tedious and repetitive tasks for common and complex asset classes. Firms should consider how easy it is to retrieve data from multiple sources, apply rules, and run tests. Pricing automation also allows funds to apply pricing policies consistently and deliver accurate prices more rapidly.

How do firms manage pricing data from multiple vendors and brokers?

Collecting prices from multiple vendors, brokers, and internal desks is an intricate process that involves synthesizing quotes from various sources, categorizing assets according to the waterfall hierarchy, and using these as references for comparison with other broker-dealer quotes.

How are broker quotes and vendor prices compared and validated?

Fund managers engage in due diligence by meticulously comparing quotes from different sources, including internal desks and primary/secondary sources. The labor-intensive process of identifying outliers and finalizing quotes for challenge initiation often requires extensive manual effort.

What is a pricing waterfall and why is it important?

The pricing waterfall is a hierarchical set of rules that defines the priority and selection of price sources during valuation. At its core, a waterfall pricing structure governs how firms select the “best available” price when faced with multiple inputs. In a multi-asset ecosystem, the integrity of the pricing hierarchy is the foundation of valuation accuracy.

How are pricing rules and thresholds defined and enforced?

Pricing rules and thresholds are defined within an asset manager’s pricing policy. Enforcement with spreadsheets and manual processes is inconsistent. Automating rule-based enforcement codifies the hierarchy into a pricing engine, which ensures every security follows consistent source precedence and fallback logic.

How are pricing exceptions identified and resolved?

Managing exceptions manually across multiple data sources, valuation dates, and funds introduces a level of complexity that is almost impossible to govern without automation. With intelligent automation, the IVP solution triggers automated challenge workflows to brokers or data vendors whenever a price falls outside an acceptable range.

How are illiquid or hard-to-price assets valued?

Pricing illiquid assets involves appraisal-based methods, discounted cash flow (DCF) models, and comparable transaction analysis.

What is mark-to-model pricing and when is it used?

Mark-to-model is an approach to valuation that uses mathematical models and assumptions when observable market prices are unavailable. It is typically used to price illiquid or complex assets that lack sufficient market pricing.

How does valuation differ for private credit and structured products?

Bespoke credit deals, private loans, asset-backed securities, structured notes, and other illiquid securities trade infrequently, rely on non-standard documentation, and depend on sparse or inconsistent price sources. Pricing these instruments requires a mark-to-model approach

How do buy-side firms maintain auditability in pricing and valuation?

Maintaining an audit trail with spreadsheets is difficult because they overwrite previous values without preserving the decision trail. The IVP Pricing and Valuation Solution creates a complete audit trail for all pricing workflows, so teams can easily show the source for every price.

How is pricing data published to downstream accounting and reporting systems?

The IVP Pricing and Valuation Solution integrates seamlessly with downstream accounting and reporting systems, making it simple to publish prices consistently.