Highland Global, LLC released its third quarter 2006 update to its quarterly research on “Discount Statistics of Closed-End Funds.”
Each quarter, Barron’s Online reports statistics on publicly traded closed-end funds including: the discount (or premium) of the market price from the fund’s net asset value (NAV), yearly average discount or premium, the fund’s objective and return measurements.
For the third quarter, Barron’s reported 439 closed-end funds traded at discount to their NAV. The average discount to NAV was 7.1 percent compared with 8.3 percent in the second quarter. The median NAV for the third quarter was 6.9 percent compared to the second quarters 7.9 percent, and the standard deviation for the third quarter was 4.3 percent compared to 4.6 percent in the second quarter.
“Selecting an appropriate discount applicable to minority interests in family limited partnerships is a challenge for financial analysts and business appraisers,” says a Highland Global spokesman. “The assumptions that the analyst makes are particularly important and may come under intense scrutiny. Given that the selection of the appropriate discount is based on the reasoned, informed judgment of the analyst, supporting the discount with appropriate data is prudent. As a reference point for selecting the applicable discount for a minority interest in a family limited partnership, the analyst may consider discounts associated with shares in publicly traded closed-end funds as well as the relationship between the volatility of the fund (the fund’s beta), the focus/objective of the fund, and the characteristics of the interest being valued.”