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September 01, 2009


Laura Borg

Actually, true business risk to an administrator would come from agreeing to formulate independent valuations - the opposite of what Castle Hall believes. Just one mistaken valuation on a position could bring the firm down. Surely any staff member good at valuing something exotic would be paid more at a hedge fund, leaving the juniors at the administrators. Insurance would be prohibative and administrators would have to charge more. NAV's would come out much later as managers argued with the administrator and refused to sign off on a NAV driven by a valuation given by an administrator employee who has never traded in their life.

Without the details of the GlobeOp case we can't know where the failing was. If the pricing policy in the OM said that the administrator should use the manager's price for the asset type in question then I can't really see any liability. Perhaps it called for other steps which were not followed. In any case, perhaps GlobeOp is looking to do less valuation work in future, not more, as a result of this...

The investors should read the pricing policy. If it says a manager's price will be used under certain circumstances, then those circumstances might arise. The administrator has done its job if it follows the pricing policy approved by the auditor.

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