Alternative Investment Survey: Validating Alternative Investment Fair Values

Share Article

Axiom Valuation's report captures the current practices of endowment, pension fund, foundation managements, and their auditors in implementing required changes in fair valuing alternative investment (AI) holdings in the midst of continuing financial scandals related to lack of transparency of AI investments, e.g., Madoff and Goldman Sachs.

They should not take solace in the fact that their procedures are sufficient when some of the most knowledgeable and sophisticated investors in the world are being routinely taken down by investments that they apparently did not understand.

Endowment, pension fund, and foundation managements and their auditors need to upgrade the level of due diligence performed in valuing opaque, illiquid and complex financial instruments in order to meet the American Institute of Certified Public Accountants (AICPA) guidelines, according to Axiom Valuation's 2010 Alternative Investment Survey: Establishing Best Practice Standards for Monitoring and Validating Alternative Investment Fair Values.

The Axiom Valuation survey was designed to measure the degree to which the oversight practices undertaken by managements of endowments, pension fund, and foundations meet or exceed the new AICPA guidelines for how to fair value AI investments. These guidelines place direct responsibility on the managers of endowments, pension funds, and foundations to have sufficient knowledge to support the reported fair values of their alternative investments.

The survey found that investor entity managements did not have suitably robust procedures in place to independently validate AI values as AICPA guidelines require. "They should not take solace in the fact that their procedures are sufficient when some of the most knowledgeable and sophisticated investors in the world are being routinely taken down by investments that they apparently did not understand." said Dr. Stanley Jay Feldman, the study's primary researcher and Chairman of Axiom Valuation.

Dr. Feldman also noted: "The focus for most of the respondents is on collecting data from alternative investment managers rather than on the analysis of this data. This is in part due to auditors placing more weight on "sufficiency" (quantity) of the audit evidence and far less weight on "appropriateness" (quality) of audit evidence."

A summary of the study's findings is available at

Axiom Valuation will be conducting a complimentary webcast to explore the results of the 1st Annual Alternative Investment Survey. For more information, please contact Jeff Rapson at: call at 781 486 0100x208.

About the Survey

Axiom Valuation conducted a confidential survey to gain a general assessment of the level of understanding of alternative investment reporting practices related to E/Fs and defined benefit plans. The survey was conducted online from February 1st, 2010 to March 31st, 2010 with independent E/Fs and DB plan sponsors participating. Survey topics included fiduciary and investment reporting challenges and AICPA best practices and compliance concerns. Most participants came from the E/F (not-for-profit area 80%) and corporate/health care industries (20%). Survey participants primarily held the positions of Treasurer, CFO, CIO, Director of Operations and Plan Administrator, the information gathered is maintained confidentially.

About Axiom Valuation

Axiom Valuation (Axiom Valuation Solutions) is a financial security and business valuation firm specializing in the application of fair value for financial reporting purposes. Fair Value is the standard for financial reporting for public and private firms, pension and retirement plans, endowment funds, and private equity and VC sponsors. Topic 820 (FAS 157) has fundamentally changed the burden associated with establishing fair value since it requires the use of market participant assumptions when the securities being valued are either thinly traded, highly illiquid or the prices that are available are "stale" at the measurement date. The upshot is that fair value pricing requires the use of analytical tools, acceptable financial models and highly trained market professionals who understand the idiosyncratic nature of market outcomes as these events relate to fair value. Axiom Valuation is a unique provider of fair value financial reporting services on a world-wide basis.

Visit and

Axiom Valuation Solutions---April 2010

Axiom Valuation Solutions
201 Edgewater Drive, Suite 255
Wakefield, MA 01880


Share article on social media or email:

View article via:

Pdf Print

Contact Author

Jeff Rapson

Roger Winsby
Visit website