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FUND 3.9 Valuation

Application

FUND 3.9.1R

This section applies to a full-scope UK AIFM of:

  1. (1)

    a UK AIF;

  2. (2)

    an EEA AIF; and

  3. (3)

    a non-EEA AIF.

Responsibility of the AIFM

FUND 3.9.2R

An AIFM is responsible for the proper valuation of AIF assets, the calculation of the net asset value and the publication of that net asset value.

[Note: article 19(10) first sentence first paragraph of AIFMD]

Standard of care of the valuation

FUND 3.9.3R

An AIFM must ensure that any valuation of an AIF's assets is performed impartially and with all due skill, care and diligence.

[Note: article 19(8) of AIFMD]

Establishment of procedures for valuation of assets

FUND 3.9.4R

An AIFM must ensure that, for each AIF it manages, appropriate and consistent procedures are established so that under the rules laid down in the applicable national law of the country where the AIF is established and the instrument constituting the fund:

  1. (1)

    a proper and independent valuation of the assets of the AIF can be performed; and

  2. (2)

    the net asset value per unit or share of the AIF is calculated and disclosed to investors.

[Note: article 19(1), (2) and (3) first paragraph of AIFMD]

Frequency of valuation of assets and calculation of net asset value

FUND 3.9.5R
  1. (1)

    An AIFM must ensure that the valuation procedure in FUND 3.9.4 R provides for the assets of any AIF under the AIFM's management to be valued and the net asset value per unit or share to be calculated at least once a year.

  2. (2)

    Where an AIF is open-ended, such valuations and calculations must also be carried out at a frequency that is appropriate both to the assets held by the AIF and its issuance and redemption frequency.

  3. (3)

    Where an AIF is closed-ended, such valuations and calculations must also be carried out in case of an increase or decrease of the capital by the relevant AIF.

[Note: article 19(3) second, third and fourth paragraphs of AIFMD]

Informing investors of valuations of assets and calculations of net asset value

FUND 3.9.6R

An AIFM must ensure that investors in the AIFs under its management are informed of the valuations and calculations in the manner set out in the relevant instrument constituting the fund.

[Note: article 19(3) fifth paragraph of AIFMD]

Performance of the valuation function

FUND 3.9.7R
  1. (1)

    An AIFM may perform the valuation itself, provided that:

    1. (a)

      the valuation task is functionally independent from the portfolio management; and

    2. (b)

      the remuneration policy and other measures ensure that conflicts of interest are mitigated and that undue influence upon the employees involved is prevented.

  2. (2)

    An AIFM that does not perform the valuation function itself must ensure that the function is performed by an external valuer.

  3. (3)

    An external valuer appointed under (2) must be a person independent from:

    1. (a)

      the AIF in respect of which the valuation function is performed;

    2. (b)

      the AIFM; and

    3. (c)

      any other persons with close links to the AIF or the AIFM.

[Note: article 19(4) first paragraph of AIFMD]

Appointment of the depositary as an external valuer

FUND 3.9.8R

The depositary appointed for an AIF may not be appointed as an external valuer of that AIF unless:

  1. (1)

    it has functionally and hierarchically separated the performance of its depositary functions from its tasks as an external valuer; and

  2. (2)

    the potential conflicts of interests are properly identified, managed, monitored and disclosed to the investors of the AIF.

[Note: article 19(4) second paragraph of AIFMD]

Appointment of an external valuer

FUND 3.9.9R

Where an external valuer performs the valuation function, the AIFM must be able to demonstrate that:

  1. (1)

    the external valuer is subject to mandatory professional registration recognised by law or legal or regulatory provisions or rules of professional conduct;

  2. (2)

    the external valuer can provide sufficient professional guarantees to be able to perform the relevant valuation function effectively under this section; and

  3. (3)

    the appointment of the external valuer complies with the requirements of FUND 3.10.2 R (General delegation arrangements) and the AIFMD level 2 regulation.

[Note: article 19(5) of AIFMD]

Delegation by an external valuer

FUND 3.9.10G

AIFMs should be aware that regulation 24(2) of the AIFMD UK Regulation prohibits an external valuer from delegating valuation to a third party.

Notification of appointment of an external valuer

FUND 3.9.11R
1
  1. (1)

    An AIFM must notify the appointment of an external valuer to the FCA.1

  2. (2)

    An AIFM must notify the FCA under (1) using the material change form in SUP 15 Annex 6C R.1

[Note: article 19(7) first part of first paragraph of AIFMD]

FUND 3.9.12G

Under regulation 24(3) of the AIFMD UK regulation, the FCA may require an AIFM to appoint another external valuer where it considers that the appointment does not comply with FUND 3.9.9 R.

Subordinate measures

FUND 3.9.13G

Articles 67 to 74 of the AIFMD level 2 regulation provide detailed rules supplementing this section.