Wed, Feb 5, 2020

Novel Coronavirus - Impact on Asset Valuations

We understand that investors are likely to be feeling anxious both today and in days to come about the potential impact of the Coronavirus on economic activity and, by extension – asset values. Daily headlines and the uncertainty of the infection’s duration are exacerbating these concerns.  Some sectors will be affected more than others. Businesses with exposure to travel and leisure, manufacturing, retail and healthcare and medical supplies – especially with links to China – will be the most obvious places to look. We continue to monitor the financial impact on businesses and asset values across the investment funds sector globally.

Challenges in setting Net Asset Value (NAV) include, but are not limited to, assessing:

  • January month-end NAV for traded investments in the A-shares market for which transaction activity is unobservable due to Chinese New Year market suspensions
  • Direct impact – both in the short-term and long-term – of investments with exposure to sectors directly impacted by the outbreak e.g. travel and leisure in China
  • Indirect impact of investments with exposure to sectors where the full impact of the epidemic won’t be known for some time e.g. manufacturing and industrial businesses with supply chain links to China
  • What is permissible based on fund agreements, valuation policies and business continuity policies, and ensuring that (both today and in the future) these policies adequately address contingency measures for dealing with market disruptions

Whether you are managing an open or closed-ended fund structure, investors worldwide will be carefully monitoring NAVs in the coming months. While commentary and narrative are important ways of communicating with investors, the NAV statement is the primary measure in which investors will monitor performance. Thus, establishing credible and independent valuation communication is essential to maintaining the trust of your investors.

Portfolio Valuation

Kroll specializes in assisting clients with the valuation of alternative investments, specifically securities and positions for which there are no "active market" quotations.

Alternative Asset Advisory

Heightened regulatory concerns and vigilance, together with increased investor scrutiny, have led to increased demand for independent expert advice.

Valuation Services

When companies require an objective and independent assessment of value, they look to Kroll.