FASB Issues More Disclosure Rules for Fair Valuation of Alternatives
FASB recently published guidance for valuing alternative investments such as hedge funds, private equity funds and real estate funds. Accounting Standards Update 2009-12 makes clear that investors cannot simply rely on the NAV provided by the funds especially when calculated at a different measurement date or where there are restrictions on redemption. Significantly, ASU 2009-12 requires detailed disclosures by investment category including redemption restrictions and the inputs used to measure fair value.
OUR TAKE: This FASB position adds significant disclosure burdens on fund-of-funds (and other reporting entities that invest in hedge and private equity funds). We are not convinced the guidance add clarity or transparency. We would prefer a regime that allows investors to rely on the provided NAV.