The Monetary Authority of Singapore (MAS) has issued its Information Paper on Valuation Practices for Singapore Fund Management Companies (FMCs). The Information Paper provides valuable insight into MAS Valuation Practices and the regulator’s expectations for the valuation of assets under management. It also highlights key observations from thematic inspections conducted across the fund management industry.
Accurate and timely valuation is critical to ensuring fair investor treatment, reliable Net Asset Value (NAV) calculations, and the integrity of fund operations. Weak valuation practices can result in mispricing, distorted performance reporting, inaccurate fee calculations, and diminished investor confidence. The Information Paper highlights common deficiencies observed during MAS’ inspections, together with examples of better practices adopted by FMCs.
1. MAS Valuation Practices: Strengthening Governance and Oversight
A strong governance framework is essential to ensuring MAS Valuation Practices remain objective, consistent, and aligned with investors’ interests. As valuations directly affect calculations, investor subscriptions and redemptions, and the calculation of management and performance fees, effective oversight is critical to maintaining the integrity of the valuation process.
FMCs must remember that independent asset valuation is a core regulatory obligation under the Guidelines on Licensing, Registration and Conduct of Business for Fund Management Companies (SFA 04-G05). According to the guidelines, FMCs can satisfy this requirement in two ways. They can engage an independent third-party service provider, such as a fund administrator or custodian. Alternatively, they can strictly segregate their internal valuation function from portfolio management operations.
Key Takeaways
- Most FMCs implemented governance arrangements including Board and senior management oversight, valuation committees, and independent review functions.
- Larger FMCs maintained more formalised frameworks; some with cross-jurisdiction operations ensured consistent valuation treatment for the same assets across different funds.
- Independent functions reviewed valuation recommendations made by portfolio managers.
- For complex assets such as private equity and private credit, some FMCs engaged external valuation specialists or obtained independent assurance to strengthen valuation integrity.
- Some FMCs lacked sufficient independence in valuation oversight from portfolio management, increasing the risk of conflicts of interest.
- Certain governance arrangements did not clearly define responsibilities, approval authorities, or escalation procedures.
Key Expectations for FMCs
FMCs should:
- Ensure the Board and senior management provide effective oversight of valuation frameworks and significant valuation decisions.
- Clearly define responsibilities and approval authorities for valuation matters.
- Implement controls to manage conflicts of interest where portfolio managers contribute valuation inputs.
- Consider external valuation support for complex or illiquid assets.
- Maintain comprehensive documentation of valuation reviews, approvals, and decisions.
The expectation to engage external valuation specialists for private equity and private credit assets may impose high costs and operational burdens. This is particularly true for boutique managers and emerging-market credit funds, where comparable pricing data is scarce. The absence of prescribed engagement frequencies leaves room for interpretation, requiring FMCs to exercise sound judgement in determining an appropriate approach.
2. Policies and Procedures: Maintaining a Comprehensive Valuation Framework
Valuation Policies and Procedures (P&Ps) provide the foundation for implementing MAS Valuation Practices consistently across all asset classes. These policies are expected to comprehensively cover the valuation process, from price sourcing and methodologies to exception handling, approvals, and record-keeping, in alignment with regulatory expectations.
Key Takeaways
- Most FMCs maintained documented P&Ps covering roles, methodologies, fair value criteria, and approving authority for deviations.
- P&Ps are typically reviewed at least annually and updated on an ad-hoc basis when trigger events occur (e.g., new asset classes, strategy changes, market developments).
- More mature frameworks included clear guidance on valuation hierarchies, fair value assessments, escalation procedures, and the use of third-party service providers.
- Deviations from approved P&Ps required documented justification and sign-off from the designated approving authority.
- Some FMCs failed to comply with their own P&Ps and did not document the basis for deviations. For example, one FMC did not obtain valuation committee approval for fair valuing a listed security with a stale price, despite this being required by its own procedures.
- A few FMCs did not review P&Ps at least annually or failed to specify ad-hoc review triggers, leaving procedures outdated.
- Some P&Ps lacked sufficient guidance on key inputs, e.g., no clarity on how to assess collateral or guarantees when valuing non-performing loans in private credit funds.
- As FMCs expand into private markets and digital assets, updated P&Ps are critical. One FMC launched a digital asset fund without adequate valuation procedures.
Key Expectations for FMCs
Valuation policies should clearly address:
- Roles and responsibilities of internal stakeholders and third-party service providers.
- Valuation methodologies and pricing sources for different asset classes.
- Fair value assessment procedures and approval requirements.
- Escalation and exception management processes.
- Documentation and record-keeping standards.
FMCs should also conduct periodic reviews of their policies and update them whenever there are significant changes to investment activities, products, or market conditions.
3. MAS Valuation Practices: Strengthening Price Validation
Price validation controls are a critical component of MAS Valuation Practices. They help FMCs identify pricing anomalies and ensure asset values remain representative of prevailing market conditions.
Key Takeaways
- Most FMCs implemented at least two types of price validation checks, with predefined tolerance levels and escalation procedures for exceptions.
- Common checks included stale price monitoring, price variance reviews, source-to-source comparisons, missing price checks, and NAV variance checks.
- Larger FMCs went further, monitoring bid-ask spreads for illiquidity, flagging securities with only one broker quote, and tracking variances between executed prices and broker quotes.
- Some FMCs established a shadow NAV process, performed by teams independent of portfolio management, to cross-check third-party valuations and detect pricing anomalies.
- Most FMCs engaged fund administrators to independently perform validation checks and report outcomes back to the FMC.
- Stale price reports were not always calibrated to fund dealing frequency; one FMC received monthly stale price reports despite managing daily and weekly dealing funds.
- Some FMCs took over a month to escalate stale or suspended securities to the valuation committee, even when daily reports were available.
- Inconsistent stale price definitions between FMCs and their fund administrators created oversight gaps, e.g., differing day thresholds resulted in securities not being flagged in a timely manner.
- Some FMCs applied uniform tolerance thresholds across all asset types, regardless of their characteristics. For example, a 5% threshold is inappropriate for publicly traded equities, where price differences between sources are typically minimal.
- Poor record keeping meant some FMCs lacked documentation of checks performed, exception investigations, and approvals obtained.
Key Expectations for FMCs
FMCs should:
- Conduct regular price validation checks using appropriate methodologies.
- Investigate stale, missing, or unusual prices promptly.
- Establish tolerance thresholds that reflect the characteristics of different asset classes.
- Independently verify pricing information where possible.
- Monitor whether market prices become available for assets subject to fair value assessments.
- Maintain adequate documentation of investigations, decisions, and follow-up actions.
4. Valuation Approaches and Methodologies: Applying Appropriate Judgement
The valuation of complex and illiquid assets often requires significant judgment. As FMCs increasingly invest in private markets, private credit, and digital assets, valuation methodologies must be robust, supportable, and capable of reflecting changing market conditions.
Key Takeaways
- Most FMCs had established procedures to identify assets requiring fair value assessments and to apply appropriate valuation models with internal review and approval.
- External valuers were engaged for complex Level 3 assets (e.g., private equity, private credit) to mitigate conflicts of interest and strengthen valuation integrity.
- Some FMCs obtained independent assurance or negative assurance opinions from external valuers regularly.
- FMCs in larger financial groups implemented consistent valuation treatment for the same securities held across funds in different jurisdictions.
- Dedicated governance processes were in place for side pocket assets, including formal methodology approval and clear documentation of the rationale for side pocketing.
- Investors were informed of third-party provider involvement, valuation approach, and applicable methodologies through fund prospectuses or offering memoranda.
- Private credit: some FMCs failed to make timely fair value adjustments despite clear signs of borrower distress, delaying markdowns until prompted by auditors.
- Non-performing loans were repeatedly restructured without meaningful repayments. As a result, valuations did not reflect actual recoverability, leading to overstated NAVs and overpaid management fees.
- Valuation inputs from portfolio companies were not independently verified, and material discrepancies between audited and unaudited financials went unexplained and undocumented.
- Digital assets: one FMC launched a fund without adequate valuation P&Ps, causing delays in asset valuation and NAV computation.
- Insufficient due diligence on third-party valuation providers prior to appointment; independence, expertise, and methodologies were not adequately assessed.
- Periodic reviews of third-party providers’ performance and effectiveness were not consistently conducted.
Key Expectations for FMCs
FMCs should:
- Apply valuation methodologies appropriate to the nature and complexity of each asset class.
- Conduct timely fair value assessments when market prices are unavailable, stale, or no longer representative.
- Objectively assess recoverability for private credit investments and make valuation adjustments promptly when required.
- Monitor assets subject to fair value assessments and reassess valuations when circumstances change.
- Conduct robust due diligence and ongoing oversight of third-party valuation providers.
- Ensure valuation decisions are communicated accurately and promptly to fund administrators.
- Maintain comprehensive documentation supporting valuation assessments, approvals, and communications.
FMCs must conduct due diligence before appointment and periodically reassess a provider’s independence, expertise, and methodologies. This is consistent with MAS’s broader Outsourcing Guidelines, which already require robust pre-engagement due diligence and ongoing monitoring for material outsourcing arrangements. For FMCs that rely heavily on fund administrators for pricing, this reinforces that valuation oversight cannot be wholly delegated.
As investment portfolios become increasingly complex, FMCs should continue strengthening their valuation frameworks to ensure valuations remain accurate, consistent, and aligned with regulatory expectations.
Conclusion
While presented as guidance, the paper sends a clear signal that MAS intends to take a firmer supervisory and enforcement approach to valuation governance.
Fund Management Companies should view MAS valuation practices as a key component of effective governance and regulatory compliance. This is especially true for those managing Private Credit, Private Equity, or Digital Asset strategies. FMCs can improve valuation accuracy and protect investor interests by strengthening valuation governance, implementing comprehensive P&Ps, conducting effective price validation checks, and applying appropriate fair value methodologies. Ultimately, aligning with MAS valuation practices helps support accurate NAV calculations, regulatory compliance, operational integrity, and long-term investor confidence. Published on the same date, MAS also released a companion paper on Risk Management Practices for Fund Management Companies, drawing on observations from its thematic inspections. Together, the two papers reflect MAS’s broader regulatory initiative to enhance governance and oversight of FMCs’ investment processes. This initiative particularly targets risk management and valuation.
How Curia Regis can support
Curia Regis supports Fund Management Companies in implementing robust valuation frameworks that align with MAS valuation practices and regulatory expectations. We help FMCs strengthen valuation processes, enhance risk management, and maintain investor confidence in an evolving regulatory environment. Our support spans governance reviews, policy development, operational controls, and compliance advisory.
Ensure your operational response is seamless. You can reach us here or email admin@curiaregis.com to get in touch.
