new edition of GIPS(R) (Global Investment Performance Standards) has a shift from "market" to "fair" value, and even comes with a recommended hierarchy for firms to utilize. But even without this move, or even if all of the securities you invest in have market prices (the first level of the hierarchy), should you have a valuation policy? And, in the event that you invest in securities that don't necessarily always have market prices, do you need a policy? Yes, to both questions!
At a minimum your policy should explain your source(s) and frequency of pricing. With assets that are more challenging to price, you need to explain how you price them. You should address how prices are corrected, when errors are discovered, and what might justify a price being overridden. If you invest globally, you should address currencies and how they're priced (sources, timing, frequency).
GIPS requires, as-of 1 January 2010, firms to revalue their portfolios in the event of large cash flows. Your policy should explain what "large" means and also what "revalue" means and how it's carried out.
There's a lot to think about, no doubt. Policies ensure consistency, completeness, and correctness. In the drafting of the policy you should engage the appropriate individuals, which arguably include someone from operations, technology, performance, portfolio management, and compliance. It also might help to pass your document by your verifier for their input. You may want to form a "valuation committee," too, to address issues that may arise from time to time.
p.s., I decided to amend this slightly, so as to avoid confusion. GIPS, both explicitly and implicitly, requires firms to have "valuation" policies. For example, ¶ I.4.A.12 states "FIRMS MUST disclose that policies for valuing PORTFOLIOS, calculating performance, and preparing COMPLIANT PRESENTATIONS are available upon request.." I guess the real point of this post was to touch a little bit more on "valuation." We can simply state that we "value our portfolios at month-end, and revalue for large flows, where 'large' is any external flow greater than 10%." I am speaking beyond this, however, and am addressing pricing of assets, in conformance with the requirement to use "fair value." I think the topic is much broader than perhaps one might think. Hope this helps!