Markit is offering GPs subject to the Alternative Investment Fund Managers Directive (AIFMD) an independent valuation service.
Under the directive, GPs have to prove that the valuation function is independent from the portfolio management team to prevent any conflicts of interest. GPs can either hire a third party valuation services provider or value the portfolio in-house, provided that dealmakers are kept far enough from the process.
The latter option has proven a headache for managers, who feel confused about what level of influence portfolio managers – who know the investments best – are allowed to have during the valuation process. Hiring an external valuer service provider, like Markit, erases the concern.
However, in past interviews with pfm, GPs subject to AIFMD said they prefer retaining control over the valuation process. Firms would have to stand behind whatever marks an outside valuation provider reaches, which doesn’t raise any issues when both parties agree, but becomes a difficult challenge when disagreements do arise. GPs would be breaking their fiduciary duty to investors if they signed off on a valuation report they didn’t ultimately agree with, market sources caution.
Nonetheless, smaller firms struggling to achieve “functional independence” between their valuation teams and portfolio management teams are expressing interest in external valuation services.
“We were looking for a cost effective external valuer service which meets AIFMD requirements and allows us to focus on the management of our fund,” said in a Markit press release Athena Capital CEO Massimo Catizone.