Comments on: BNP Paribas plays the canary role http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/ News, Views & Purviews Fri, 03 Feb 2012 02:44:40 +0000 http://wordpress.org/?v= hourly 1 By: Mark McQueen http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/comment-page-1/#comment-560 Mark McQueen Wed, 29 Aug 2007 09:33:01 +0000 http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/#comment-560 Here is one scenario. You have a private co. investment. Share was priced at $1. Next investor invests at $1.50. GAAP fair value acounting says that you need to write-up the investment you own by the 50 cents. Even though it is a private co. and there is no liquid market to sell that share in. And no liquidity discount can be applied. If it was a public co. with a $1.50 quote and a $1 cost base they'd require you to do the same. How are the two securities worth the same on the financial statements, when only one can be sold? As for private equity firms valuing the notional in-the-money value of gains on private investments and bringing that into income - and paying promote on it - that's just silly. MRM Here is one scenario.

You have a private co. investment. Share was priced at $1. Next investor invests at $1.50. GAAP fair value acounting says that you need to write-up the investment you own by the 50 cents. Even though it is a private co. and there is no liquid market to sell that share in. And no liquidity discount can be applied.

If it was a public co. with a $1.50 quote and a $1 cost base they’d require you to do the same. How are the two securities worth the same on the financial statements, when only one can be sold?

As for private equity firms valuing the notional in-the-money value of gains on private investments and bringing that into income – and paying promote on it – that’s just silly.

MRM

]]> By: RowdyRoddyPiper http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/comment-page-1/#comment-551 RowdyRoddyPiper Mon, 13 Aug 2007 23:19:57 +0000 http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/#comment-551 And lest you think that auditors are closing their eyes and singing la la la to avoid some of the shortcomings with fair valuation here's something to chew on: http://www.ey.com/global/content.nsf/International/Assurance_-_IFRS_-_How_Fair_is_Fair_Value There are readily acknowledged difficulties with fair value for illiquids, but as I asked previously, do you have anything better? And lest you think that auditors are closing their eyes and singing la la la to avoid some of the shortcomings with fair valuation here’s something to chew on:

http://www.ey.com/global/content.nsf/International/Assurance_-_IFRS_-_How_Fair_is_Fair_Value

There are readily acknowledged difficulties with fair value for illiquids, but as I asked previously, do you have anything better?

]]> By: RowdyRoddyPiper http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/comment-page-1/#comment-550 RowdyRoddyPiper Mon, 13 Aug 2007 23:11:13 +0000 http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/#comment-550 Okay, so how are accountants the culpable party here? I hate my auditors with a passion that burns hotter than 1000 suns, but to blame them for this seems a bit reactionary. What would be the proposed fix to fair value accounting? Do you find historical cost basis more relevant? In that case, the accountants would not be in the same sentence as BNP because I doubt fund investors would allow NAV to be computed on a historical cost basis. It's well and good to criticize but if you don't have a solution in mind you're just bitching. So enlighten me, how do you feel management should best reflect the value of financial assets on the balance sheet and increases in value on the income statement? Okay, so how are accountants the culpable party here? I hate my auditors with a passion that burns hotter than 1000 suns, but to blame them for this seems a bit reactionary. What would be the proposed fix to fair value accounting? Do you find historical cost basis more relevant? In that case, the accountants would not be in the same sentence as BNP because I doubt fund investors would allow NAV to be computed on a historical cost basis.

It’s well and good to criticize but if you don’t have a solution in mind you’re just bitching. So enlighten me, how do you feel management should best reflect the value of financial assets on the balance sheet and increases in value on the income statement?

]]> By: Kul Mani http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/comment-page-1/#comment-547 Kul Mani Fri, 10 Aug 2007 21:27:54 +0000 http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/#comment-547 <p>Canadian equivalent is Section 3855 which unlike the forthcoming FAS 159 is not optional. Don't know French standards, but being unable to calculate simple NAV of various funds does raise the legitimate concern of what "accounting" impact (if any) would this have at the parent level. Regardless of the accounting impact, the market impact is already self-evident... </p> Canadian equivalent is Section 3855 which unlike the forthcoming FAS 159 is not optional. Don’t know French standards, but being unable to calculate simple NAV of various funds does raise the legitimate concern of what “accounting” impact (if any) would this have at the parent level. Regardless of the accounting impact, the market impact is already self-evident…

]]> By: Mark McQueen http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/comment-page-1/#comment-546 Mark McQueen Fri, 10 Aug 2007 02:32:57 +0000 http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/#comment-546 Nice to hear from you. We are based in Canada, this is true. And I don't recall getting the speech from our accountants that anything other than fair market value accounting was a real option if we wanted GAAP statements. As for the differences betweeen French accounting standards relating to fund pricing and the GAAP approach to fair market value, my point was more straightforward than that, I admit. If you think that BNP's auditors weren't cognizant of the basic fair market value accounting approach, I certainly have no inside information to convince you otherwise. The fact that the BNP press release referred to their inability to "value fairly" the portfolio is striking, however. MRM Nice to hear from you.

We are based in Canada, this is true. And I don’t recall getting the speech from our accountants that anything other than fair market value accounting was a real option if we wanted GAAP statements.

As for the differences betweeen French accounting standards relating to fund pricing and the GAAP approach to fair market value, my point was more straightforward than that, I admit.

If you think that BNP’s auditors weren’t cognizant of the basic fair market value accounting approach, I certainly have no inside information to convince you otherwise. The fact that the BNP press release referred to their inability to “value fairly” the portfolio is striking, however.

MRM

]]> By: RowdyRoddyPiper http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/comment-page-1/#comment-544 RowdyRoddyPiper Thu, 09 Aug 2007 19:24:43 +0000 http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/#comment-544 One final note since you are quite obviously not Wellington Asset Management and are based in Canada, Canadian GAAP may be different. One final note since you are quite obviously not Wellington Asset Management and are based in Canada, Canadian GAAP may be different.

]]> By: RowdyRoddyPiper http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/comment-page-1/#comment-542 RowdyRoddyPiper Thu, 09 Aug 2007 19:02:18 +0000 http://www.wellingtonfund.com/blog/2007/08/09/bnp-paribas-plays-the-canary-role/#comment-542 Hopefully your job doesn't require you to work off of the facts and get the story straight before spouting off. You do realize that fairly valuing assets for fund valuation purposes and "Fair Value" under FAS 159 are two separate things right? You also realize that FAS 159 is an election under GAAP, not a requirement. Seriously, look it up. Or I can do it for you since you appear to be too lazy to do so. http://www.fasb.org/pdf/fas159.pdf For you to pound on this canard that if you want GAAP statements, you must use fair value is inaccurate and ridiculous. Quite frankly casts doubts about your seriousness in researching and understanding the subject. Well have fun doing whatever it is you really do for a living. Hopefully it's not managing money. Hopefully your job doesn’t require you to work off of the facts and get the story straight before spouting off.

You do realize that fairly valuing assets for fund valuation purposes and “Fair Value” under FAS 159 are two separate things right? You also realize that FAS 159 is an election under GAAP, not a requirement. Seriously, look it up. Or I can do it for you since you appear to be too lazy to do so.

http://www.fasb.org/pdf/fas159.pdf

For you to pound on this canard that if you want GAAP statements, you must use fair value is inaccurate and ridiculous. Quite frankly casts doubts about your seriousness in researching and understanding the subject.

Well have fun doing whatever it is you really do for a living. Hopefully it’s not managing money.

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