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 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. Governance: Strengthening Independence and Oversight
A strong governance framework is essential to ensuring valuation decisions are objective, consistent, and made in the best interests of investors. 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 must satisfy this requirement either by engaging an independent third-party service provider (such as a fund administrator or custodian) or by strictly segregating their internal valuation function from portfolio management operations.
Key Takeaways
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, particularly 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 consistent valuation practices 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
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. Ongoing Price Validation Checks: Strengthening Valuation Reliability
Price validation controls are a critical component of the valuation process, helping FMCs identify pricing anomalies and ensure asset values remain representative of prevailing market conditions.
Key Takeaways
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
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.
The expectation that FMCs conduct due diligence prior to appointment and periodically reassess a provider’s independence, expertise, and methodologies is consistent with MAS’s broader Outsourcing Guidelines, which already require material outsourcing arrangements to be subject to robust pre-engagement due diligence and ongoing monitoring. 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, particularly those managing Private Credit, Private Equity, or Digital Asset strategies, should view MAS valuation practices as a key component of effective governance and regulatory compliance. By strengthening valuation governance, implementing comprehensive P&Ps, conducting effective price validation checks, and applying appropriate fair value methodologies, FMCs can improve valuation accuracy and protect investor interests. 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, particularly in the areas of 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. From governance reviews and policy development to operational controls and compliance advisory, we help FMCs strengthen valuation processes, enhance risk management, and maintain investor confidence in an evolving regulatory environment.
Ensure your operational response is seamless. You can reach us here or email admin@curiaregis.com to get in touch.
