GMM 2015: Breakout Session

1. Current Perspectives on
Investment Valuation

2. 2015 Fair Value Pricing Survey

3. Survey highlights
• Foreign securities – Zero triggers
o 7 percent of Fair Value (FV) Survey participants lowered trigger
o 47 percent reported that they use a zero-trigger
• Price challenges – Market data
o 61 percent (up from 54 percent) only challenge with market data
o 79 percent (up from 73 percent) may change the price
• Fixed income securities – Odd lot pricing
o Prior year 98 percent/2 percent
o Only 6 percent FV Survey participants use odd lot price from a pricing
vendor
• Valuation policies and procedures – Updates
o 73 percent revised their valuation policies and procedures
o Pricing sources, asset classes, hard to value, due diligence,
governance

4. Governance & KVIs
• Survey highlights
• Industry observations
• What’s next?

5. Liquidity
• SEC Activities
• Industry perspectives

6. SEC Activities
• SEC actions
• Industry perspectives

7. • U.S. Money Market Reform Overview
– Moving to a floating NAV from $1 stable NAV
– Moving away from amortized costs to fair value pricing
– Evaluated Prices are inputs to fair value. Board Considerations:
• Inputs
• Methodologies
• Models
• Assumptions
– Funds must be compliant by October 2016
• Implications of U.S. Money Market Reform
– Increased due diligence visits and vendor participation in board meetings
– Transparency of prices
– Intraday Money Market prices
• Industry has been discussing 9:00 a.m. EST / 12:00 p.m. EST / 3:00 p.m. EST / EOD valuation points.
– SOC1 and Institutional Controls will become a point of emphasis
– Methodology documentation
NTAC:2SE-18

8. Mutual Fund Accounting Valuation Reports- Daily
• Halted/Suspended/Delisted Securities- Intraday report holdings halted, suspended or de-listed
• Trade vs. Market Price Report- Report detailing trade prices vs. vendor prices
• T plus 1 Report- Shows trades processed greater than t+1. Includes NAV impact
• Stale Price Report – Details staled prices. Includes commentary
• Percentage Movement Report – Large pre-defined tolerance price movements
• Daily Fair Value Report- Local market prices, FV factors, and factored prices
• Daily Back Testing Report- Report compares same day prices (close, fv) vs. next day open prices
• Price Source Change Report- Details securities with changed pricing source
Monthly/Quarterly Reporting
• T+1 Report Summary
• Trade vs. Market Prices
• Fair Value Board Reports
NTAC:2SE-18

9. 16%
11%
10%
5%
13%
13%
11%
11%
11%
30%
34%
15%
8%
16%
33%
36%
39%
39%
54%
55%
75%
87%
71%
54%
53%
50%
50%
0% 20% 40% 60% 80% 100%
% of Fair Value Days
Fair Value Scorecard - Q1 2015
Directionally Incorrect Directionally Correct Spot On
Fund 1
Fund 2
Fund 3
Fund 4
Fund 5
Fund 6
Fund 7
Fund 8
Fund 9
Definitions:
Each Fair Value NAV was evaluated against the Same Day Close NAV and Next Day Open NAV. Results of each evaluation are aggregated in
in the following three categories:
"Directionally Incorrect" - The Fair Value NAV was marked in the opposite direction of the Next Day Open NAV and greater than 10 bps
"Directionally Correct" - The Fair Value NAV was marked correctly in the direction of the Next Day Open NAV, but greater than 10 bps
"Spot On" - The fair value NAV was within 10 bps of the Next Day Open NAV
NTAC:2SE-18