Real Estate Investment Funds: Financial reporting - Alfi

In general, a FOREF invests in illiquid and/or hard-to-price assets, where valuation
information is infrequent and it may be necessary for judgments to be made in arriving
at a fair valuation of individual assets. The FOREF’s Governing Body 3 should ensure
that a robust valuation process is designed and clearly documented, with appropriate
controls embedded to avoid or resolve conflicts of interest. IOSCO’s 4 Technical
Committee published a final report in November 2007 on "Principles for the Valuation
of Hedge Fund Portfolios 5 ". ALFI REIF Sub-Committee believes that these principles
are relevant for the valuation of FOREF portfolios.
1. IOSCO’s Nine
Principles of Valuation
a. Comprehensive, documented policies and
procedures should be established for the
valuation of financial instruments held or
employed by a [...] fund.
b. The policies should identify the methodologies
that will be used for valuing each type of
financial instrument held or employed by the
[...] fund.
c. The financial instruments held or employed by
[...] funds should be consistently valued
according to the policies and procedures.
d. The policies and procedures should be
reviewed periodically to seek to ensure their
continued appropriateness.
e. The Governing Body should seek to ensure
that an appropriately high level of
independence is brought to bear in the
application of the policies and procedures and
whenever they are reviewed. Independence
may be achieved by, inter alia:
QQ
Third-party pricing services.
QQ
Independent Reporting Lines within
the Manager.
QQ
Valuation Committee.
f. The policies and procedures should seek to
ensure that an appropriate level of
independent review is undertaken of each
individual valuation and in particular of any
valuation that is influenced by the Manager.
g. The policies and procedures should describe
the process for handling and documenting
price overrides, including the review of price
overrides by an Independent Party.
h. The Governing Body should conduct initial
and periodic due diligence on third parties that
are appointed to perform valuation services.
i. The arrangements in place for the valuation
of the [...] fund’s investment portfolio should
be transparent to investors.
3 The Governing Body may be a FCP Management Company,
the Board of the SICAV or the General Partner, depending on
the legal form used.
4 ISOCO is the International Organisation of Securities Commissions.
5 The report can be found under the following link:
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD240.pdf.
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