At Xenomorph we are always looking to stay one step ahead of our clients’ requirements for data management solutions. To do that we aim to maintain a close understanding not only of their core business operations (across front, middle and back-office functions) but also their regulatory obligations.

Investment managers face a variety of rules and standards governing the way they value portfolios, place controls around that process, as well as calculate and communicate performance and risk analytics. While some of those rules have remained unchanged for the best part of a century (a good example being the US Investment Company Act of 1940), others have evolved progressively over the years and many new rules are still being introduced.

We have dissected some of the key regulations that impact the valuation and control functions across our buy-side clients. That not only includes traditional long-only managers, but also hedge funds and private equity/debt managers. The resulting analysis is summarised in a research report that we have just published. Please note this paper is less focused on how market participants derive a theoretical value for assets (i.e. the valuation models that they use); but more on the rules they apply in controlling that process.

The paper highlights key rules relating to fund NAV calculation, valuation control, as well as the calculation of performance and risk analytics. Our research covered European and UK regulations such as UCITS (FCA COLL), AIFMD (FCA FUNDS) and PRIIPS; US rules such as the Investment Company Act and Form PF; emerging APAC regimes such as the Asia Region Fund Passport (ARFP) and Mutual Recognition of Funds (MRF); as well as global standards such as GIPS and IPEV valuation guidelines. 

Of all the standards we studied, European regulations are the most detailed. UCITS and corresponding legislation passed by national competent authorities are particularly well-evolved when it comes to valuation controls. Rules covering private funds are also noteworthy, given that they are still evolving. The recent growth in private assets under management – including hedge fund, private equity/debt and venture capital funds – has triggered greater scrutiny over NAV calculations and disclosures, as well as corresponding controls.

In speaking to our clients, many of whom operate globally and are subject to more than one set of rules, we found that investment management organisations typically look to implement internal processes and controls that are consistent across their operations. That means they look to comply with the most exacting regulatory requirements for all their funds. Doing that creates some challenges in terms of system requirements, which is where we can help.

If you’re interested in finding out more, please download our research here or get in touch directly.