A quarterly investor survey conducted by Standard & Poors is aiming to inject some transparency into the problematic valuation of illiquid asset-backed securities.
Over 60 institutions active within the structured finance market are taking part in a series of Valuation Input Consensus surveys to help benchmark the assumptions made for the intrinsic (or economic) valuation of residential mortgage backed securities (RMBS), the most common form of ABS asset. The results of the latest survey are scheduled for release on February 15th.
Organised by the Fixed Income Risk Management Services (FIRMS) group within Standard & Poors, the survey findings aims to offer information into how market participants go about valuing distressed assets on their balance sheets or within their portfolios revealing any convergence and/or discrepancies between buy side and sell side methodologies. By collating market participants input assumptions and methodologies, the surveys findings offer participants the chance to benchmark their own approach.
As the G20, the financial industry, regulators and auditors have all emphasised over the past 12 months, recovery in the securitisation industry requires improved investor confidence, says Peter Jones, global head of Valuation Services at FIRMS. And this in turn requires pricing transparency and consistency around all the input assumptions, models and processes involved in a valuation.
The survey results also reveal how investors expectations are changing for the collateral behind all classes of UK, European and US RMBS. The survey was initiated in Q1 2009 with 20 participants but the increasing validity of the numbers as each quarters data is added has encouraged an increasing number of survey participants, which will further assist the process.
Market requirements for valuation information range from front to back office, for activities such as net asset valuation for funds, financial reporting and regulatory surveillance.
It is hoped the increasing volume of data received will help create a benchmark of input assumptions for the benefit of investors, those responsible for monitoring pools of ABS assets and other market participants says Jones.