If our personal pension pots are going to be invested in illiquid assets, it is beholden on those who profit from managing those assets , to provide us with assurance that we are getting “fair value” for our money.
What do we mean by “fair value”? Fair value is a selling price for an item to which a buyer and seller can agree. We may not be selling , you may not be buying but fair value is based on a consistent methodology to which both parties agree.
I have been speaking with experts in the valuation of illiquid assets and have come to the conclusion that if “fair value” cannot be agreed, there is “no value” to an investment.
It strikes me that consumer will consider any price that is agreed between two parties who are connected – may be deliberately mis-valued, either over or under the fair value
over value – a misvaluation of assets which falsely represents the value of the asset as higher than it really is – used to give a false confidence in the asset, the asset manager and the provider’s VFM
under value – the opposite; a misvaluation of assets which sets out to provide the buyer of an asset a false advantage and reduce value to the seller. Used to transfer value from one party to another – typically taking advantage of vulnerability
All this seems pretty obvious to anyone who has ever bought a second hand car, an item in a car-boot or their house.
To have confidence in “private markets”, we need to expect “fair value”. There is too much scope in the current system to over or under value privately held assets. The Government want us to hold private assets in our pension portfolios but so long as commentators like Ludovik Phallipou are deeply suspicious of the investments which are being made in our name.
There are organisations who understand fair value from the consumer’s point of view. They are looking to create a framework which will allow consistency of approach in the valuation of the illiquid investments made on our behalf.
But for these organisations to prosper and deliver to our expectations, they need the support of regulation. The FCA is embarking on an investigation into how private markets can be better regulated to ensure we all get “fair value”.