IOSCO has published its final Report on Principles for the Valuation of Collective Investment Schemes (“CIS”).

The Principles are intended to be a basis against which both the industry and regulators can assess the quality of regulation and industry practices concerning CIS valuation. IOSCO acknowledges that implementation of the principles may vary from jurisdiction to jurisdiction, depending on local conditions and circumstances.

The Report defines “CIS” as collective investment schemes that are open-ended and provide regular redemptions to shareholders at net asset value (the then-current value of their portfolio securities and other assets, less liabilities) (“NAV”).

The entity that is ultimately responsible for compliance with the Principles is referred to in the report as the “Responsible Entity”.  In an Irish context the IFIA corporate governance code and relevant Central Bank requirements identify the CIS itself (in the case of an investment company) or the management company (in the case of a unit trust, investment limited partnership or common contractual fund) as the entity responsible for the valuation policies and procedures of the CIS.

The Principles are listed below.

  • The Responsible Entity should establish comprehensive, documented policies and procedures to govern the valuation of assets held or employed by a CIS
  • The policies and procedures should identify the methodologies that will be used for valuing each type of asset held or employed by the CIS
  • The valuation policies and procedures should seek to address conflicts of interest
  • The assets held or employed by the CIS should be consistently valued according to the policies and procedures
  • A Responsible Entity should have policies and procedures in place that seek to detect, prevent and correct pricing errors. Pricing errors that result in a material harm to CIS investors should be addressed promptly, and investors fully compensated
  • The Responsible Entity should provide for the periodic review of the valuation policies and procedures to seek to ensure their continued appropriateness and effective implementation. A third party should review the CIS valuation process at least annually
  • The Responsible Entity should conduct initial and periodic due diligence on third parties that are appointed to perform valuation services
  • The Responsible Entity should seek to ensure that arrangements in place for the valuation of the assets in the CIS's portfolio are disclosed appropriately to investors in the CIS offering documents or otherwise made transparent to investors
  • The purchase and redemption of CIS interests generally should not be effected at historic NAV
  • A CIS’s portfolio should be valued on any day that CIS units are purchased or redeemed
  • A CIS’s NAV should be available to investors at no fee