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 normal market environments, this process is no easy task. As we have now entered an entirely new dynamic, pricing teams are under an immense amount of pressure to accurately value their securities. Many of the funds have seen significant increase in trading volume and this coupled with underlying volatility in the market have created never-seen pricing issues for the valuation teams.

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 endeavor where values are challenged constantly. During this process of challenging a price, the pricing team must reach out to the vendor or broker to explain their rationale for contesting. A typical hedge fund will challenge between 10% and 30% of quotes in any given month.

In today’s environment, pricing teams have seen a more than 30%   increase in challenges. Market volatility has increased the spread of ask and bid and to get accurate quotes from the market makers is proving to be a difficult task. Tracking and updating these prices with revised quotes is a significant burden on the pricing team as the process is predominately manual for many funds, making it difficult to keep a clean audit of revised prices. Over time, these teams have developed highly customized manual spreadsheets for each category of securities to make the process easier but in reality, they have ended up creating a situation ripe with risk factors and hurdles such as:

  • Delay in publishing the fund NAVs
  • Inability to handle the pricing of new asset class / new 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
  • Running complex pricing tests
  • Auditing pricing quotes and commentary
  • Generating 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 with the challenges we are facing today. With a lack of automation, the pricing team will spend most of its time dealing with mundane manual logistics rather than providing meaningful insights to the valuation committee.

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

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