privately originated loans don't have cusips - if there isn't a default or material change in the financials of the business, they aren't going to be marked lower. Did you examine their valuation policy in the SAI? Even in private equity the marks don't move much quarter to quarter and many providers rely on practical expedient. There's not much sorcery going on...i'd look to the public markets for some wild valuations
Thanks, Owen. Yes, I've spent more time in SAI's and 'valuation' section of N-CSR/NPORT footnotes than I'd care to share. The disclosures are borderline useless. For instance, here is how Redwood describes the 'valuation technique' it employs along with 'unobservable inputs', 'range of inputs/weighted average', and 'impact to valuation from an increase in input': 'Transaction price', 'not applicable', 'not applicable', and 'not applicable', respectively. If I were to paraphrase that, it's 'we value these assets at most recent price at which we've transacted and so if we don't transact they're the same value'.
But I think that's kind of beside the point: The reason I focused on these funds is because they purport to value their portfolios on a *daily* basis like an OE or ETF would. And yet by all appearances they're incapable of valuing those holdings daily (I have no reason to doubt anything you say above; it only reinforces that they're not equipped to do it). It's that pretense -- the having the cake of providing a level of liquidity/transactability and the eating it too of not really fulfilling the accompanying responsibility of marking the positions each day so as to strike a good NAV and facilitating buying/selling at an accurate price -- that I'm hung up on. And yes it does seem incongruous for them to tout strong risk-adjusted returns as a selling point when those measures are really premised on the expectation that you're valuing the underlying in a timely, complete way. Bottom line: I personally don't think these types of assets are appropriate in an interval fund. In an LP, between willing parties, knock yourself out. Even in a closed end fund, where the market can render its own verdict on value and there's no pretense of allowing investors to transact anywhere but in the secondary, ok. But in an interval it seems really questionable to me.
All fair - there are methodologies to daily value these positions using baskets of public market equivalents to achieve a closer mark to market price. I will say I personally think it’s unfair that DC participants and regular way investors (non QPs) don’t have access to private markets because they don’t have pension plans anymore (DBs invested at scale in drawdowns) or they don’t meet net worth requirements. I think the intent w interval and tender funds is pure and worthy despite maybe the precision of daily marks. I don’t think the public market valuations are the be all and end all and are quite irrational …Look at a chart of smci or even Meta over the last couple of years.
I question whether such methodologies are being applied. It has all the telltales of ‘this is how it’s done’, with standard operating procedure being to wait until it’s absolutely necessary (based in part on public market movements too glaring to ignore) to mark. We see DC differently. I think they’re fine without and the DB argument is not persuasive (DB puts the risk/onus to fund the benefits on the pension sponsor; DC puts it squarely on the participant). The argument that public market movements somehow are irrational is in one sense true but in another way not super compelling justification when you consider difficulties public fund mgrs have had succeeding in a market that is supposedly irrational.
privately originated loans don't have cusips - if there isn't a default or material change in the financials of the business, they aren't going to be marked lower. Did you examine their valuation policy in the SAI? Even in private equity the marks don't move much quarter to quarter and many providers rely on practical expedient. There's not much sorcery going on...i'd look to the public markets for some wild valuations
Thanks, Owen. Yes, I've spent more time in SAI's and 'valuation' section of N-CSR/NPORT footnotes than I'd care to share. The disclosures are borderline useless. For instance, here is how Redwood describes the 'valuation technique' it employs along with 'unobservable inputs', 'range of inputs/weighted average', and 'impact to valuation from an increase in input': 'Transaction price', 'not applicable', 'not applicable', and 'not applicable', respectively. If I were to paraphrase that, it's 'we value these assets at most recent price at which we've transacted and so if we don't transact they're the same value'.
But I think that's kind of beside the point: The reason I focused on these funds is because they purport to value their portfolios on a *daily* basis like an OE or ETF would. And yet by all appearances they're incapable of valuing those holdings daily (I have no reason to doubt anything you say above; it only reinforces that they're not equipped to do it). It's that pretense -- the having the cake of providing a level of liquidity/transactability and the eating it too of not really fulfilling the accompanying responsibility of marking the positions each day so as to strike a good NAV and facilitating buying/selling at an accurate price -- that I'm hung up on. And yes it does seem incongruous for them to tout strong risk-adjusted returns as a selling point when those measures are really premised on the expectation that you're valuing the underlying in a timely, complete way. Bottom line: I personally don't think these types of assets are appropriate in an interval fund. In an LP, between willing parties, knock yourself out. Even in a closed end fund, where the market can render its own verdict on value and there's no pretense of allowing investors to transact anywhere but in the secondary, ok. But in an interval it seems really questionable to me.
All fair - there are methodologies to daily value these positions using baskets of public market equivalents to achieve a closer mark to market price. I will say I personally think it’s unfair that DC participants and regular way investors (non QPs) don’t have access to private markets because they don’t have pension plans anymore (DBs invested at scale in drawdowns) or they don’t meet net worth requirements. I think the intent w interval and tender funds is pure and worthy despite maybe the precision of daily marks. I don’t think the public market valuations are the be all and end all and are quite irrational …Look at a chart of smci or even Meta over the last couple of years.
I question whether such methodologies are being applied. It has all the telltales of ‘this is how it’s done’, with standard operating procedure being to wait until it’s absolutely necessary (based in part on public market movements too glaring to ignore) to mark. We see DC differently. I think they’re fine without and the DB argument is not persuasive (DB puts the risk/onus to fund the benefits on the pension sponsor; DC puts it squarely on the participant). The argument that public market movements somehow are irrational is in one sense true but in another way not super compelling justification when you consider difficulties public fund mgrs have had succeeding in a market that is supposedly irrational.
mark to market
God forbid a recession happens, these marks may have some jump risk!