Fair Value of Illiquid Secruties: Are We There Yet?

Posted: 28 May 2009

Date Written: April 27, 2009

Abstract

FAS 157 has caused significant concerns among alternative asset managers, beyond those related to markdowns. Investment managers looking to earn excess returns from unique trades would always like to disclose as little as possible about investment strategies, positions, and trades - and the new accounting principles mandate significantly expanded disclosures, especially for the most illiquid and hard-to value assets. In addition, FAS 157 requires many funds to revisit their valuation policies - policies used for years by fund management and relied on by investors. Unless managers of illiquid and hard-to-value assets understand how to best comply with FAS 157, fund NAVs could become less and less reflective of fair value until large markdowns are needed at year-end.

Keywords: Fair Value, FAS 157, Illiquid Securities, Restricted Stock, Warrants, Auction-Rate Securities, CDO, ABS

JEL Classification: M44

Suggested Citation

Robak, Espen, Fair Value of Illiquid Secruties: Are We There Yet? (April 27, 2009). Available at SSRN: https://ssrn.com/abstract=1410742

Espen Robak (Contact Author)

Pluris Valuation Advisors ( email )

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Suite 1202
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