Shifting Gears to Navigate the New World of Valuations: Pressures, Priorities, Practices, and Prospects

by Cubillas Ding,  Sreekrishna Sankar, January 4, 2010
Vendor Reviews
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

Vulnerabilities in managing new/complex product risks and achieving the appropriate level of transparency are the main issues faced by end users during OTC asset valuation. With end users asking for more information and increased access, the cost of managing these activities is on the rise.

One of the major issues during the credit crisis was the price variability and illiquidity of OTC portfolios. When the markets dislocated, the vetting and reconciliation challenges related to valuations of illiquid assets became apparent. In today’s climate, there is still a strong aversion to valuation risks, and the investing community has focused scrutiny on assets with valuations based on models, asking for greater levels of granularity in terms of how prices are derived and how valuation processes are executed, managed and vetted.

In this report, Shifting Gears to Navigate the New World of Valuations: Pressures, Priorities, Practices, and Prospects, Celent explains the valuation services ecosystem. It analyzes the future of the valuations industry and explains best practices for success in the long run.

“The fragmentation in organizational valuation practices and growing regulatory overheads is already taking a toll on the costs for end users, and Celent expects to see more concerted efforts from users to centralize and align valuation practices for the entire organization,” says Cubillas Ding, senior analyst with Celent and coauthor of the report.

“Due to the recent financial crisis and increased need for transparency, Celent sees forward thinking firms looking at the bigger picture of achieving firmwide 'front to back' valuation consistency and pursuing longer term transformation programmes to achieve these goals,” adds Sreekrishna Sankar, Celent analyst and coauthor of the report.

This report analyzes the various users of valuation services and how they utilise these services. It looks at the best practices in the industry as well as how a firm chooses a valuation service. The insights for this study are a result of interviews with more than 40 senior executives from buy side firms, sell side institutions, and vendors across the financial services industry to understand pain points faced by firms, the spectrum of industry practices, insights into best practice approaches and considerations for investing in and building out valuation capabilities.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

Market Landscape

7

 

Players in the Value Chain

7

 

Redistribution Models

7

 

Mix and Match Approaches and the Hierarchy of Asset Classes

8

Analyzing Demand for Valuation Services

10

 

Characteristics of Customer Segments

10

 

Users and Usage of Valuation Services

13

 

Valuation Challenges Faced by Firms

14

 

Customer Selection Criteria and Buying Dynamics

17

 

Valuation Practices and Operating Models

19

Analyzing the Supplier Market for Valuation Services

21

 

Valuation Services Ecosystem

21

 

Valuation Services: Representative Vendors

22

 

Adjacent Applications

24

Valuation: Spending Priorities

25

Looking Forward

28

Leveraging Celent’s Expertise

30

 

Support for Financial Institutions

30

 

Support for Vendors

30

Related Celent Research

31

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