Milestone Group to Launch Fair-Value Feature to Flagship Platform

Milestone Group, a provider of investment software to fund managers, is working on introducing a fair-value feature for its pControl platform. 

For the initial release, the new functionality is being deployed within an undisclosed buy-side client, says Geoff Hodge, chairman at Milestone, but the tech will become widely available by the fourth quarter of 2020.

The feature is intended for teams responsible for the administration of the fair-value process, and ensuring that securities in funds or portfolios are correctly valued in accordance with institutional policies.

Hodge says the fair-value module on pControl will receive daily feeds containing security prices from market data providers and third-party accounting agents. It will then run them through a series of tests to highlight where a securities valuation may not be consistent with policy. These exceptions are then highlighted to the teams responsible for overseeing and administrating the valuation process so that they can recommend when action needs to be taken to estimate the fair value of an asset on a given day.

“What we are doing is putting [the market price] through a workflow that says who needs to look at this, or who needs to see or authorize or provide evidence of that being a good price, such that the investment committee can sign off on it,” Hodge says.

In many cases, a pricing committee may review fair-value recommendations against certain criteria. Once the recommended price has been approved, it gets locked in as a fair value that can be used for valuation purposes. “It is essentially the fund manager becoming involved in the process of producing prices that may then actually be sent back to the administrator to use in the valuation. But it is not the prices that the administrator can just get in the ordinary course of events; it is ones that they can’t get, and therefore we need this process to make sure it is right,” Hodge says.   

He says fair value is needed when it is difficult to obtain a reliable and accurate market price, such as if a security that trades on the NYSE is suspended from trading, and there is no observable trading activity providing insight into its value. In this situation, users of the product will research information about this situation in order to make a recommendation on how to value the security. 

Marian Azer, managing director for the Asia-Pacific region at Milestone, says the issue of fair-value pricing is particularly pertinent during periods of increased market volatility.

“[Early in the pandemic], the market was extremely volatile for securities that are thinly traded or alternative type securities; their value can be really skewed either very high or very low. So it is particularly important as investors are transacting to maintain that equity [and] those assets need to be valued at what is fair—that is why it is called fair value, because they can be inflated or under undervalued,” she says. 

In April this year, the Securities and Exchange Commission voted to propose a new rule that would establish a framework for fund valuation practices. The rule is designed to clarify how fund boards can satisfy their valuation obligations in light of market developments. Although not specifically designed for the new proposed regulation, Hodge says Milestone’s new product is aligned to meet its challenges and will evolve as other future regulations come about.