Valuation issues within Maltese collective investment schemes : an analysis

Abstract

Purpose: The purpose of this study is to explore the valuation function within Collective Investment Schemes (CIS) by identifying current challenges and issues that are being faced in this industry. The study analyses how such problems are being addressed by regulations and market practitioners. Design: Literature comprising journal articles and other publications, which examine valuation and the impact of regulations on CIS, was reviewed. Semi-structured interviews were conducted to collect data about local perceptions on CIS. These consisted of 13 interviews ranging from audit firms, fund managers, fund administrators and the regulator. Findings: The study reveals a positive impact of fair value accounting for investors, but it also highlights some of its challenge. It also provides evidence of key driving factors for adopting an internal or an external valuation and valuation techniques within a CIS which are highly dependent on the investment strategy. The findings identify several issues found in the valuation practice relating to: quality, subjectivity, costs and timeliness, which may potentially influence the pricing of a share price of a CIS. Conclusions: It is evident that despite the increase in several regulations which govern valuation, certain problems are still encountered by market practitioners. Moreover, the industry experienced disruption from external forces due to recent changes, which are likely to impact the practice as well as the sudden rise of alternative investments in the local scene. Value/Implications: The importance of valuation cannot be underestimated, but there is a dearth of research on the post-financial crisis. Therefore, regulators and standard setters must remain vigilant to combat such problems in order to safeguard investors. Such measures could include mandatory use of valuation standards and education.