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Forum Files Comment Letter to SEC on Valuation Guidance for Directors

On June 3, the Forum sent a letter to Norm Champ, the Director of the SEC’s Division of Investment Management, outlining the Forum’s views on the principles that should underlie any valuation guidance issued by the SEC. Specifically, the Forum’s letter requested that any proposed guidance be principles-based and asked the SEC to recognize the authority of directors to delegate day-to-day valuation responsibilities consistent with the 1940 Act. 

The letter states that principles-based guidance, rather than prescriptive approaches to valuing specific classes or types of securities, is the most effective way to provide lasting guidance applicable to a wide variety of funds and will keep pace with developments in the securities markets. Further, such guidance would provide directors with the flexibility to approve and implement approaches to valuation that are responsive to the specific securities held by the funds they oversee and that are tailored to the portfolio management strategy employed by the fund and the related valuation risk issues that it faces. By empowering directors in this way, the SEC would help directors serve their shareholders by maximizing the probability that each individual fund is operated in the best interests of its shareholders. 

The Forum also argued that the Commission should recognize the authority of the directors to use experts (whether within the organization or outside) to provide the information necessary to perform their duties with respect to fair valuation. The letter states that fund advisers (or other third parties identified in a fund’s valuation procedures) have the required expertise to make judgments on fair value prices and the resources available to determine daily values. The letter recognizes, however, that the ability to delegate is accompanied by a responsibility to define the parameters of the relationship with the adviser or other expert and establish a mechanism to review how the process is functioning. 

To read the letter, please click here.