Individual stock portfolio valuations are intended to reflect the amount which would likely be received if the entire position was sold as of the date of the valuation. Such an assumption is directly dependent on the size of the holding relative to the volume of transactions in the period of valuation. The assumption is probably reasonable if the holding is valued at the price of the last sale of the day of the valuation, if the value of the holding is a small amount relative the value of the shares traded on the day of the valuation.
If the value of the position is significant relative to the value of the shares traded on the last day of trading in the period, then it is unlikely that the last sale of the period is a reasonable basis for valuing the position.
The technology exists for investment managers to use the Arthur Lipper Transaction Valuation Weighted Approach* (ALTVWA) valuation, in addition to the traditional last sale pricing of holdings.
The ALTVW approach allows portfolio positions to reflect an investment manager’s discount in last sale pricing to the size of the holding relative to the daily trading valuation of the number of days necessary tor the shares being offered for sale to represent as the manager selected percent of the value of the position. If the estimated number of days necessary to sell the entire position was only 2 days, there might not be any last sale price discount. However, if the value of total shares traded was such that more than 2 days would be necessary to sell all of the position, then a last sale price discount would be determined by the investment manager. Of course, it is possible that a transaction value weighted discount policy could be developed by those supervising the investment manager.
The ALTVWA is a useful tool in reflecting the true liquidity of the stock investment portfolio of the institution, whereas simply basing individual position valuations based on the price of the period’s last sale could be misleading.
It is up to the investment manager to determine the number of days reasonably required to sell the entire position at the period’s last sale price. The ALTVWA simply provides the data regarding the value of the holding versus the valuation of the shares traded in the market in the investment manager’s selected number of days prior to the portfolio valuation date.
Use of the ALTVWA will assist investment managers in both assessing portfolio liquidity and in presenting information to their investors. We look forward to assisting investment managers in the use of our ALTVWA management analytical tool.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
14911 Caminito Ladera,
Del Mar, CA 92014
+1 858 793 7100
arthurlipper@gmail.com
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