Increasing Transparency in Fund Asset Valuation... Financial Supervisory Service Establishes Guidelines

[Asia Economy Reporter Lee Jung-yoon] Guidelines have been established to make the valuation methods and procedures for assets included in funds more transparent.

The Financial Supervisory Service announced on the 20th that it has established the Fair Value Evaluation Guidelines for Non-Marketable Assets, which will be implemented starting January 1 next year.

These guidelines stipulate that non-marketable assets in general private equity funds must be evaluated periodically at least once a year and additionally evaluated as needed when significant events occur. Furthermore, asset managers are required to provide evaluators with sufficient and accurate information to ensure thorough evaluations. For newly established asset managers, applying the methods presented in the guidelines can reduce evaluation costs and enable efficient assessments.

Under the current system, assets without market prices among fund holdings must be self-evaluated at fair value by the asset manager. However, since the evaluation methods and procedures of asset managers were not disclosed, the process was opaque and the reliability of the fair value was questioned. In response, the Financial Supervisory Service and the Korea Financial Investment Association formed a task force (TF) in May 2020 and established these guidelines.

A Financial Supervisory Service official explained, "By presenting principles and methods for fair value evaluation of non-marketable assets included in funds, we aim to improve the transparency of the asset managers' evaluation process. We expect that the efficiency of evaluation tasks will increase, the reliability of fair values assessed by the industry will be enhanced, and market perception will gradually improve."

The guidelines will be applied as the Korea Financial Investment Association's model standards starting with fair value evaluations of non-marketable assets with valuation dates on or after January 1 next year.

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