MANAGING VALUATION RISK

MARKET DATA DAY

MARC SOMMERMOSCOW, 23 MARCH 2011

INTRODUCTION

WHAT HAPPENED

“At least 50 per cent of hedge fund failures were due to identifiable operational problems”

Capco, 2003

“A full 90 per cent [of funds] said operational due diligence was a top priority for investors.”

Rothstein Kass, 2010

2008: Nothing had changed so far, and everyone was suffering …

NOWADAYS

Institutional investors are now quizzing their administrators over two key points:

The existence of assets and

The value of assets

THE WORLD HAS CHANGED

NOW AND THE FUTURE

THREE RECENT CHALLENGES FOR PRICING AND REFERENCE DATA

WHAT IS VALUATION RISK?

DEFINITION

Evaluations present a professional opinion of the market value of a security at a given point in time,

based on the fundamentals of each security with reference to available credit risk and trading information

OUR SOLUTION INTEGRATION WITHCUSTOMER WORKFLOW

Thomson Reuters Pricing Service

Prices are put through tolerance checks The underlying methodologies used to calculate the prices are

made available to the client. Pricing evaluators are on hand to provide insight into exactly how

the market inputs support the price.

SCHEMATIC WORKFLOW

New bond issue

New bond issue

ModelledModelled

Hand pricedHand priced

Market quotesMarket quotes

Benchmark yield curve

Benchmark yield curve

FilteringFilteringRelative

value analysis

Relative value

analysis

SpreadSpread

TRPS evaluation generated

TRPS evaluation generated

Pricing methodology

Pricing methodology

EVALUATION PROCESS

MARKET MONITORING

Evaluators constantly review the pricing

Research from the investment community

Primary market

CDS market Network of market contacts

Financial press Ratings actions

Electronic news alerts Tolerance reports

Interactive challenge process

METHODOLOGY EXAMPLE:HIGH YIELD BONDS

PRICING QUALITY PROCEDURES

FAS 157 (IAS 39)

FAS 157 – VALUATION TECHNIQUES

QUESTIONS?