‘Is the value of your assets based on art rather than science- and how can you prove it?’ As sovereign debt crises continue to dominate the headlines, it’s a question worth asking, because like most fixed income assets, the value of government bonds is based on a combination of verifiable facts and informed assumptions. The more competent your people are, the more accurate the assumptions which underpin your pricing models will be. But with plenty of incentives to game the numbers and produce higher valuations, it’s not unknown for the tail to wag the dog when it comes to pricing fixed income assets, and for people to find ways of creating the price they want.
We’ve all seen the consequences of that, but today you need to justify those assumptions to regulators, auditors, investors and managers after the event. And that’s almost impossible if assumptions are recorded in various spreadsheets, random electronic files and post-it notes stuck to monitors. It’s also pretty hard if you have an impeccably controlled, technology-enabled environment in one department, and a complete free-for-all in another. The right data management solutions will give you the discipline and transparency into the art of valuation without cramping the style of those doing the valuing. It will enable consistency across the enterprise and enable every department to create, record, monitor and audit the valuations they need. No technology should stop you valuing any instrument or any asset in the ways you see fit – but at some point you will need to explain that decision. It’s time to think about a flexible, transparent, consistent, and repeatable approach that lets you do just that.