Wednesday, 19 September 2007

What's in a Mark Part 157 (not 39)

Be careful what you embrace, particularly in the area of valuation policy. According to Bloomberg:

Absolute Capital Management Holdings Ltd. will stop clients from pulling money from eight hedge funds with $2.1 billion of assets after co-founder Florian Homm quit.

Investors will be asked not to remove cash for a year as the firm restructures the funds, Absolute Capital said in a statement today. Seven of the pools invested in over-the-counter U.S. stocks that can't be sold at the prices at which the firm had valued them, affecting as much as $530 million of assets.

If an asset is marked at price different from where you can sell it, how exactly is that mark to market?

Update. I like this fragment from the Independent so much I want to quote it.

Sandy Chen of Panmure Gordon [Absolute Capital's Broker] said the apparent valuation shortfall "could prove fatal for the equity funds" and highlighted "the risk of investor lawsuits as an unquantifiable threat to earnings". He slashed his price target from 750p to 150p...

Is that target change great? I just wish more analysts were willing to move their forecasts with such speed and robustness.

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