|Madison Street Capital's Karl D'Cunha Quoted In Markets Media Online|
Karl D'Cunha, Senior Managing Director at Madison Street Capital was quoted in Markets Media Online article,"Second Opinion Matters."
The market for third party valuation providers—independent research firms—are more widely used in today's marketplace. Asset managers, in particular, alternative asset managers are employing a third party to valuate securities that are not easily quoted on data platforms, such as Bloomberg and Reuters.
“Because of what happened in the last couple of years—issues such as the credit crisis and insider trading probes, there is demand for transparency, especially with illiquid securities or positions,” said Karl D'Cunha, senior managing director at Madison St. Capital, a global investment banking firm who provides third party valuations. “When funds are fundraising, or even when they're trying to keep investors in the fund, they can reassure them by saying they hired an independent valuation firm for ‘these' type of securities.”
While a second opinion on valuation can help alternative asset managers heighten transparency to their investors, conflicts may arise when there are disagreements in price between the research firm and the fund. Funds are not always enthusiastic to abide by a third party's opinions, yet, are mandated to comply.
“Asset managers can open a can of worms if they don't go with a third party's opinion,” noted D'Cunha, citing his own firm, “Investors will say (to the fund) ‘Why didn't you use Madison St. Capital's number, if you hired an independent research firm?'”
“The biggest source of disagreement surrounds specific market knowledge and regional knowledge. Hedge funds doubt research firms' understanding of a specific area they cover, but research firms can cite comparable public companies as a benchmark (for security pricing). They're not influenced by what they know,” commented D'Cunha.
Funds and third parties may also disagree on valuation due to timing. Black swan events, such as the March earthquake in Japan, may have caused a disconnect between securities' valuation.