Valuation Practices for Fund Management Companies in Singapore: Key MAS Expectations and Practical Considerations
Why Valuation Practices Matter for Fund Management Companies
Accurate asset valuation is fundamental to investor confidence, regulatory compliance, and fair treatment across a fund's lifecycle. In Singapore, the Monetary Authority of Singapore (MAS) expects fund management companies (FMCs) to maintain independent valuation processes supported by robust governance, well-defined policies and procedures, and effective controls.
When valuation frameworks are weak or inconsistently applied, the consequences can directly affect investors and other stakeholders.
Risks of Poor Valuation Practices
Erroneous Subscription and Redemption Calculations
Valuation errors can lead to inaccurate Net Asset Value (NAV) calculations. As a result, investors may subscribe to or redeem units at prices that do not accurately reflect the value of the fund's underlying assets.Distorted Fund Performance
Asset mispricing can distort a fund's returns, track record, and risk profile, potentially misleading investors and decision-makers.Improper Valuation of Asset Transfers
Transfers between funds, portfolios, or related entities may occur at inappropriate values, creating fairness and governance concerns.Excessive Payment of Fees
Where management or performance fees are linked to NAV, inflated valuations can result in excessive fees being charged to investors.
MAS' Four Key Areas of Focus for Valuation Practices
MAS' supervisory expectations for FMCs can be grouped into four interconnected areas:
Governance
Strong oversight by boards and senior management, with sufficient independence and objectivity during both normal market conditions and periods of stress.Policies and Procedures
Comprehensive, current, and consistently applied valuation policies that address all relevant asset classes and financial instruments.Ongoing Price Validation Checks
Independent validation processes supported by clearly defined tolerance thresholds, escalation frameworks, and documented reviews.Valuation Approaches and Methodologies
Appropriate valuation methodologies aligned with industry standards and supported by rigorous due diligence.
Governance: Establishing Independence and Accountability
Effective valuation governance starts with clear oversight structures. Senior management should oversee valuation activities directly or through a dedicated committee with sufficient independence from the portfolio management function.
Characteristics of Strong Governance Frameworks
Leading FMCs typically implement the following practices:
A valuation committee that operates independently from portfolio management
Committee members with at least five years of relevant valuation or financial services experience
Compensation arrangements that are not linked to fund performance outcomes
Clearly documented Terms of Reference (ToR) outlining responsibilities, authority, and escalation requirements
Common Governance Weaknesses
FMCs should pay attention to the following risk areas:
Portfolio managers valuing hard-to-value assets without sufficient independent oversight
Missing or poorly defined Terms of Reference
Limited independent valuation structures, particularly within smaller FMCs
Build genuine independence into the valuation process and formalise governance responsibilities through clear Terms of Reference. Where operational constraints exist, smaller FMCs should consider conflict mitigation measures, transparent disclosures, external valuation providers, or independent review arrangements.
Policies and Procedures: Building a Consistent Valuation Framework
Comprehensive valuation policies and procedures form the foundation of a reliable valuation process. They should cover the full range of asset classes and financial instruments held by funds and be consistently followed across the organisation.
What Effective Valuation Policies Should Include
A robust framework typically addresses:
Roles and responsibilities of all parties involved, including third-party service providers
Valuation methodologies and valuation frequency for each asset class
Exception management and escalation procedures
Record-keeping and documentation requirements
Scheduled periodic reviews and event-driven reviews triggered by specific circumstances
Common Policy and Procedure Gaps
Areas frequently identified as weaknesses include:
Policies that no longer reflect actual operating practices
Insufficient guidance for complex or less liquid assets
Deviations from established procedures without appropriate justification or approval
Lack of defined review cycles or trigger events for ad-hoc updates
Maintain valuation policies that are current, practical, and aligned with day-to-day operations. Review them regularly and ensure all exceptions are properly documented, justified, and approved.
Ongoing Price Validation Checks: Ensuring Valuation Accuracy
Independent price validation is a critical control that helps identify pricing anomalies before they impact NAV calculations.
FMCs should implement structured validation processes supported by clear tolerance thresholds, escalation procedures, and evidence of review.
Security-level checks
| Price variance | Flag securities with daily price changes beyond a set limit |
| Source-to-source | Detect discrepancies between prices from different sources on the same day |
| Missing price | Identify securities with no available price |
| Stale price | Identify securities with outdated prices that may not reflect true value |
Fund-level checks
| Index check | Compare fund NAV movements against index movements for abnormal differences |
| NAV variance | Check if daily NAV changes between dealing dates exceed a defined threshold |
Common Challenges in Price Validation
Potential weaknesses include:
Inadequate detection of stale prices
Limited depth or frequency of validation reviews
Absence of predefined tolerance limits that trigger investigation or escalation
Incomplete record keeping that makes it difficult to demonstrate control effectiveness
Price validation controls should be independent, risk-based, and consistently applied. Clear escalation pathways and thorough documentation help strengthen governance and support regulatory expectations.
Valuation Approaches & Methodologies
| Level 1 | Quoted prices in active markets Publicly traded stocks, government bonds and money-market instruments |
| Level 2 | Observable market inputs Corporate bonds, swaps and over-the-counter derivatives |
| Level 3 | Unobservable inputs and judgement Private equity, private debt and complex or illiquid assets |
MAS Expectations for Robust Valuation Practices
MAS expects fund managers to maintain a disciplined and independent valuation process. Key expectations include:
- Ensuring portfolio management activities remain independent from the valuation function.
- Developing and maintaining robust valuation methodologies, supported by clearly documented models, inputs, and assumptions.
- Conducting appropriate due diligence on third-party valuation providers where external specialists are engaged.
- Performing timely fair value assessments and ongoing monitoring to reflect changing market conditions and asset-specific developments.
These expectations are intended to enhance the reliability of reported valuations and mitigate the risk of conflicts of interest.
Key Valuation Watchouts
Regulators continue to identify common weaknesses in valuation practices, particularly for complex and illiquid investments. Areas requiring heightened attention include:
- Inappropriate valuation of overdue or distressed private credit investments.
- Failure to independently verify inputs used in fair value assessments.
- Insufficient consideration of the complexities and valuation challenges associated with digital assets.
- Delays in communicating approved fair value adjustments to fund administrators.
- Inadequate monitoring of market developments and other factors that may affect assets subject to fair value measurement.
Weaknesses in any of these areas can undermine the integrity of reported asset values and expose firms to regulatory and reputational risk.
Greater valuation complexity requires stronger verification, oversight and documentation.
What Good Valuation Practices Look Like
FMCs with mature valuation frameworks typically demonstrate the following characteristics:
Independence throughout governance and valuation processes, with conflicts appropriately mitigated and disclosed
Clearly defined roles and responsibilities across boards, management, operational teams, and third-party providers
Comprehensive and regularly updated valuation policies and procedures
Robust price validation controls and prompt resolution of exceptions
Well-supported valuation methodologies, timely revaluations, and complete documentation
Together, these practices help strengthen investor protection, improve valuation accuracy, and support compliance with MAS's supervisory expectations.
How Baker Tilly Can Support Fund Management Companies
Baker Tilly provides independent valuation support to help fund management companies meet their NAV determination, financial reporting, transaction, and governance requirements. Our valuation services can complement internal valuation frameworks while supporting transparency, consistency, and regulatory expectations across the investment lifecycle.
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