An Asset Management Firm Optimizes Interval Fund Valuations

Introduction

The valuation team of a large asset manager was tasked with creating a robust and scalable valuation process for a new credit interval fund. The firm determined they would be providing a daily NAV.

Given the compressed timeline for publishing daily NAV, the team needed a solution that brought efficiency and automation to the heavy task of providing reliable valuations across a large portfolio. There were additional concerns about distressed assets, where the valuation process required further support, monitoring, and impairment testing.

“The Market Intelligence team was able to support their reporting requirements at-scale while offering greater overall efficiency and strengthening their valuation reputation among investors.”

A second important factor was building confidence with investor, regulators, and auditors. With increased scrutiny from global regulators on private credit valuations, third-party independence in the valuation process is increasingly important. The team also needed to preserve an audit trail that documented processes across the portfolio and could be easily interpreted by their auditor.

The firm opted for S&P Global Market Intelligence’s Private Market Valuations. The Market Intelligence team was able to support their reporting requirements at-scale while offering greater overall efficiency and strengthening their valuation reputation among investors.

Pain Points

As the firm began laying out the groundwork for their interval fund offering, the CFO was increasingly worried about the feasibility from an operational point of view. The task of providing a daily NAV was a new challenge that raised several areas of concern:

• Resource requirements: Providing valuations for all their positions on a daily basis was going to be resource-intensive, and the team hours could be better spent elsewhere.
• Inexperience with daily private credit intricacies: The team had serious concerns around how to best address public market volatility in relation to private credit, especially when valued daily.
• Tight turnaround time: Due to the tight reporting timelines inherent in delivering a daily NAV, the team needed a quick turnaround time based on a market data snapshot. To strengthen their valuations, the team was looking for same-day market data to ensure the most up to date inputs.
• Manual errors: Previous solutions were prone to manual data entry errors that led to significant downstream issues.
• Efficient technology and process design: The firm recognized they would ultimately need a technology-based solution to help them easily identify significant price movements and quickly understand the underlying drivers of those changes.
• Incorporating relevant benchmarking data: During prior audit periods, the firm faced challenges related to the quality of benchmarking data used for private valuations.
• Communication: The team needed a consistent point of contact who would be available to help answer any queries and alert them to key changes in valuation.

These pain points underscored the necessity for a robust valuation solution that not only delivered real-time insights and analytics, but also integrated seamlessly with the firm’s operational needs. S&P Global Market Intelligence’s Private Markets Valuations emerged as the ideal solution, effectively addressing the client’s challenges by providing tailored expert insights, timely delivery, reduced manual errors, and comprehensive benchmarking data. 

The Solution

The firm chose to partner with the Market Intelligence Private Market Valuations team, a leading provider for interval fund valuations with nearly a decade of experience in daily illiquid credit valuations and existing relationships with the largest investment managers in the interval fund space. The Market Intelligence solution for interval funds is a robust multi-layered process that incorporates technology to maximize efficiency, along with human expertise from an experienced team of analysts.

The solution is built on a proprietary technology platform streamlines the valuation, review and delivery processes to ensure daily reporting timelines are met. Automated integration of market data ensures a high degree of timeliness and accuracy of inputs and results.

The qualified team of CFA/CPA analysts works closely with clients to apply a deep domain knowledge of Level 3 private credit valuations. The team uses agreed-upon communication frameworks to alert clients to valuation changes resulting from new information, market data or amendment incorporation ahead of price delivery; the client is always in the loop.

Key Features

• Enhanced credit risk analysis: Credit Risk Scorecards provide a framework for monitoring credit risks, with valuable insights into asset-level credit quality alongside valuations. 
• Highly tailored service: The analyst team collaborates with clients to develop investment-specific models aligned with their valuation policies, ensuring outputs are tailored to meet their unique needs while maintaining independence. 
• Advanced analytics portal: A user-friendly portal serves as a central hub for historical valuation results, advanced analytics, and documentation management. Valuation results, key inputs, and cash flows are available as structured, extractable data via web portal, API, and data feed. The platform features an interactive data visualization dashboard that simplifies time series analysis, highlights outliers for easy monitoring, and streamlines the review process by allowing users to drill down into the underlying valuation inputs.
• Full audit support included: Transparent reporting offers visibility into all inputs and assumptions. Should any questions arise during an audit, the team is ready to assist at no additional charge.
• Dedicated analyst team for your portfolio: Each client is assigned a dedicated team of valuations experts who are familiar with the portfolio and client valuation policies, ensuring quick and efficient resolution to any queries related to valuations.
• Comprehensive, same-day market data: The solution utilizes proprietary inputs from S&P Global Market Intelligence’s extensive credit market data, which includes pricing for over 6,700+ loans and 1.4+ million bonds, as well as detailed middle market loan sector curves. We can provide same day-market data using L1200 (London) or N1200 (New York) snap times.

Key Benefits

Implementing a comprehensive independent third-party valuation solution provides several key benefits for the firm:

• Scalability for Daily Operations: The solution is designed to efficiently handle the daily valuations at scale, ensuring timely and reliable processing even as the volume of assets grows.
• Strengthened reputation amongst investors and auditors: By incorporating third-party independence into the valuation process, investors gain confidence in the fair value of their portfolios, and auditors view the process more favorably.
• Informed Decision-making: All key inputs, assumptions, and benchmarks are easily accessible via customized outputs available through SFTP, API, or the online platform.
• Reduced errors: Our technology-enabled solution significantly minimizes manual errors by automatically incorporating market data points, such as forward rate curves and market benchmarks. This platform operates under a SOC-compliant framework with SSAE 18 Type 2 certification.
• Time Savings for Key Stakeholders: Outsourcing the valuation process allows investment teams to reclaim valuable time, enabling them to focus on revenue generation and strategic initiatives.

The Private Market Valuations team excels in delivering independent valuation solutions that enhance transparency and trust in the investment process. By leveraging advanced technology and comprehensive market data, they empower clients to make informed decisions while minimizing operational risks. This strategic approach not only strengthens the firm’s reputation among investors and auditors but also positions clients for success in a competitive market. With the capability to efficiently scale daily valuations, the team is committed to accuracy and efficiency, driving value for clients and contributing positively to the broader investment landscape.

^{1 Source: Fundraising challenges accelerate private equity fund managers’ retail push.}

^{2 There must be enough liquid assets to cover repurchase requests. These repurchase requests cannot be less than 5% or greater than 25% of NAV. Source: SEC §270.23c-3}

The S&P Global Market Intelligence Private Market Valuations team, an award-winning provider established in 2013, offers private asset managers and investors a full range of valuations services and software to address complex reporting requirements, scale valuation processes, achieve greater operational efficiency, and promote effective risk management. The service offers third-party, independent valuations, assurance reviews and/or credit assessments across Level 3 alternative assets.