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YEAR-END VALUATIONS – ILLIQUID ASSETS

ARE THERE MORE EFFICIENT WAYS TO VALUE ILLIQUID ASSETS AT YEAR-END?

 

Dublin, Ireland  –  As institutional investors begin to wind down at this time of year, the annual push for year-end valuations begins. For many, year-end valuations are still a key measurement of performance and are directly linked to compensation. This process has become increasingly challenging in recent years: A continuous fall-off in liquidity over the last decade has seen the process of valuing off-the-run securities become increasingly complex and inaccurate at the end of the year.

When it comes to valuing illiquid fixed income securities, we look at more efficient ways of valuing hard to price assets at year-end.


IT’S ALL ABOUT TIMING

When valuing an asset for the purposes of marking performance, the typical goal is to calculate a price that the asset would trade at under normal market conditions. This can be particularly challenging for an illiquid asset with little or no trading history. In most of these cases, a properly documented pricing model is used. Pricing models will vary depending on the structure of the asset. Each model will have well defined inputs and each data input will be reviewed for accuracy and relevance. Adjustments can be made for trade size and timeframe. Under regulation such as AIFMD, final approval of the valuation is provided by parties not linked directly to the front office team involved in the trade. So far, so normal. The challenge here is the time of year.

 

Year end is anything but normal. It is historically one of the most illiquid periods of the year. Managers and traders are out of the office and even if they are contactable, nobody wants to take on new risk at the end of the year. Liquidity in all markets is lower than normal and as you approach December 31st there is a growing difference in the price of a trade that settles before January 1st and the same trade settling after January 1st.

In this environment, managers are expected to make assumptions about the price their illiquid assets will achieve in the marketplace. Data inputs will be gathered from an illiquid market and market liquidity assumptions are made under far from normal conditions. The idea that accurate valuations can be calculated based on the market conditions in the final working days of a calendar year is simply flawed. Yet many market participants continue to mark their performance to this date.

One simplified way of demonstrating the changes in market liquidity is to look at bond issuance. In the table below, we see that corporate bond issuance in the US and total bond issuance in Europe typically see major drop offs in December, followed by a surge of issuance in the following January. This drop in activity is repeated in primary and secondary markets all over the globe.

 

US Corporate Bond Issuance European Bond Issuance
Nov Dec Jan Nov Dec Jan
2016 $81 bn $46 bn $184 bn €100 bn €54 bn €284 bn
2015 $105 bn $57 bn $134 bn €163 bn €77 bn €222 bn
2014 $119 bn $59 bn $96 bn €146 bn €77 bn €209 bn

Source: Bloomberg

 

THE SOLUTION TO THE YEAR-END VALUATIONS CONUNDRUM

Investors in illiquid assets tend to have extended holding periods. The assets themselves are valued a couple of times a year at most and quite often, only once a year, at year end. We believe that where an asset is expected to be held beyond year end, that an alternative, more liquid valuation date be used for illiquid asset valuations. To provide investors with valuations under normal market conditions, the process must be carried out under normal market conditions. Luckily, the months of November and January are typically liquid and stable.

 

At Corvid Partners, we provide market based valuations to a wide range of clients on a wide range of assets. In recent years we have seen clients taking steps to move away from year end valuations. Some have moved valuation dates to November while others have taken the approach of valuing assets on two or more dates either side of year end and using a weighted average price or worst price approach.

 

Making these changes can take some effort: For funds, it can require changes in fund documentation and board approval. However, managers are going to these lengths to address the issue of illiquid security valuations, demonstrating how important the topic has become to investors in recent times.

 

Whether it’s moving a single pricing date or taking average pricing over a short period of more liquid market activity, we at Corvid believe that a pragmatic approach to year-end valuations in what for many is an increasing portion of their portfolios is a sensible and important approach to improve reporting accuracy.

 

For more information, visit corvidpartners.com or click here to contact us directly

 

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NEW BESPOKE ASSET VALUATION SERVICE

BESPOKE ASSET VALUATION SERVICE

 

23rd Jan 2017, Dublin, Ireland – Corvid Partners is a provider of illiquid fixed income valuations to the capital markets industry. As part of its ongoing new product development, Corvid is today launching its new bespoke asset valuation service.

 

Independent pricing of illiquid debt can be challenging for all market participants. Bespoke, structured products that are primarily held by a single investor pose a particular challenge on a number of fronts. From regulatory capital to funding costs, these types of transactions can be difficult and expensive to manage.

 

Corvid’s new bespoke asset valuation service works with clients to develop processes that will provide independent valuations on a regular basis. From building pricing models to delivering data to reviewing methodologies, Corvid can provide clients with an independent process and valuation. This provides clients with potential savings in funding costs, risk capital and allows for larger volumes of business.

 

Spokesperson Arun Biswas commented “The launch of this new service demonstrates our commitment to improving transparency and liquidity in illiquid debt markets. This service is an extended version of our current pricing service that we have developed on the back of a number of client requests. We hope to announce further developments with this service in the coming months.”

 

If you would like to know more about Corvid’s valuation services, call us on +353 1 2544733

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CORVID’S ILLIQUID DEBT VALUATION OFFERING REACHES 10,000 ASSETS

CORVID’S ILLIQUID DEBT VALUATION OFFERING REACHES 10,000 ASSETS

 

11th December 2016

 

10000 assets

Corvid Partners today added its 10,000th fixed income asset to its illiquid debt valuation service. In 12 months, Corvid has become one of the largest providers of illiquid credit pricing to some of the world’s largest capital markets firms. In building our portfolio of 10,000 assets we have developed over 100 pricing models that we use to value more than 30 different asset classes.

 

Our pricing team records more than 125,000 data points each day. We value debt issued in 14 different currencies from more than 40 different countries. Looking ahead to 2017, Corvid will continue to add new asset classes to its offering to meet our client’s needs.

 

We have been able to reach this milestone by providing high-quality data to our clients and transparency in our processes. We don’t manage any third party assets and we don’t trade any assets for the firm. This keeps us impartial and independent in our opinions. When our clients disagree with our valuations, we provide same day price challenging services. We work closely with multiple data providers and are continuously updating our models and our approach to different asset classes.

 

We look forward to 2017 and continuing to grow our business. With our help, we believe we can help illiquid credit investors provide more certainty and transparency to their portfolios.

 

If you would like to know more about our services, call us on +353 1 2544733

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BLOOMBERG L.P. SELECTS CORVID FOR INDEX VALUATION SERVICES

BLOOMBERG L.P. SELECTS CORVID FOR INDEX VALUATION SERVICES

 

15th October 2016,

 

 

New Haven, CT. – Corvid Partners, a provider of illiquid fixed income valuations, today announced it has agreed a new deal to provide illiquid bond valuations to Bloomberg L.P. for its BRAIS index products. Corvid will provide regular pricing on the hard-to-price bond constituents that make up part of the Bloomberg Index services.

 

This new development makes Corvid Partners one of the largest providers of illiquid bond valuations to Bloomberg. Spokesperson Naomi Duffy said “We are excited by the opportunity this deal gives us to expand our client offerings. The continued growth in our relationship with Bloomberg is a testament to the hard work of the Corvid team and our commitment to providing the highest quality data to the capital markets industry.”

 

For further information about Corvid Partners, contact us at www.corvidpartners.com or call +353 1 2544733

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CORVID ADDS EUROPEAN ILLIQUID DEBT SECURITIES TO ITS PRICING SERVICES

CORVID ADDS EUROPEAN ILLIQUID DEBT SECURITIES TO ITS PRICING SERVICES

 

20th August 2016,

 

Dublin, Ireland – Corvid Partners is a provider of illiquid fixed income valuations to the capital markets industry. Today, it expands its valuations services to European illiquid debt securities.

 

The service is aimed at data providers, investors and administrators who are involved in illiquid credit markets. By providing independent and transparent valuations on hard-to-price or level 3 assets, Corvid gives clients greater confidence in its reporting to regulators and investors.

 

Darragh Mooney, Head of European operations outlined the reasons for the expansion. “Europe has historically had a much broader range of fixed income security types. Each country has its own idiosyncrasies and legacy structures. Combine this with the continued stagnation of capital markets in Europe and you have a large pool of illiquid assets that investors struggle to price with confidence. We want to bring some clarity to that confusion with our independent valuation services.”

 

Corvid will initially focus on illiquid corporate bonds and bespoke securitised products to meet demand from its current client base. It will expand this offering to include public sector and infrastructure products in the coming months.