Friday, July 16, 2010
Don't reconcile daily? Don't worry ... what's an error here and there?
Does "revalue" simply mean "reprice"? If it does, then that means that on a large flow day you might actually not have the correct holdings in your portfolio, but the repricing will be deemed sufficient, even though the resulting market value is in error.
If it does mean "reprice," then why not simply call it "reprice"? That would eliminate confusion.
I would argue that revalue should mean that you literally revalue the portfolio, meaning that you reconcile the positions to ensure that they're right, and then reprice.
Firms that don't reconcile on a regular basis run the risk of having errors. Most managers no doubt reconcile only monthly, which is fine, provided they make adjustments to prior periods, as necessary; especially if they're either doing daily performance or revaluing for large flows.