Thursday, July 29, 2010

Don't be afraid of "fair value"

Some GIPS(R) (Global Investment Performance Measurement) compliant firms are getting nervous about the upcoming requirement to use "fair value" pricing. For many, the concept is one that they historically saw no need to be concerned with, since they rely on market prices. But now they wonder what changes they will be required to make to maintain compliance.

The answer is quite simple: none!

Fair value is a general approach to pricing to ensure that the price represents the best price that one would expect to use to value an asset. GIPS provide a hierarchy to help firms navigate through the process to get this best price. And the very first level is market pricing! So, if you rely on market prices today and are able to get prices for all of your investments, nothing more needs to be done!

1 comment:

  1. Of course, when one applies "fair value" to labor costs (as a clients says he does), then you find excellent savings given the declining value of skilled labor in the marketplace. I guess the question becomes, how does one establish the market price...


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