Valuation risk management where you ask the agents, see the evidence behind every price and approve every change
Mismarks caught before NAV is struck, and every board report drafted from the evidence.
See one case, screen by screen ↓Valuation risk management is how a fund's valuation designee identifies, monitors and controls the risks that a holding is priced wrongly — stale prices, single-source quotes, weak pricing vendors, methods that drift — and reports them to the board under Rule 2a-5. Valuation Risk Management gives the designee seven agents that check every price every night, tie each exception to the valuation risk register, back-test methods, review vendors and draft the board reports, while people propose, approve and sign.
AI in asset management: a buyer's guide to agentic AI for investment managers →
Updated
Under Rule 2a-5, valuation risk management is the valuation designee's job: it must assess and manage valuation risks, select and test fair value methods, oversee pricing vendors, report to the board every quarter and every year, and tell the board of a material matter within five business days. In most fund complexes that work is split across tolerance reports in the accounting platform, broker quotes in email, vendor portals and a valuation risk register in a spreadsheet that is reassessed once a year and rarely linked to the daily exceptions.
The risk sits where nobody looks twice. A Level 3 loan priced by one broker for weeks, a stale price nobody notices, a back-test miss that never feeds back into the method, a vendor weakness found only at the annual due diligence review, a portfolio manager's view creeping into a mark, a material matter noticed on day six. Then the quarterly board report is rebuilt by hand from all of it, over two to three weeks.
Estimated split for one quarterly Rule 2a-5 report at a fund complex of about 90 funds, by hand and with the solution.
Seven agents check every price, find second sources, review vendors, back-test methods and draft the board reports; the analyst proposes, the valuation designee approves, the board sees only signed reports.
Quillfield Capital is valuation designee for 90 registered funds with $486.3 billion of net assets. On Thursday, October 15, 2026, its Valuation Committee chair asks the agents in plain words what the overnight checks found, opens the evidence behind each answer, and approves. Here is the morning, screen by screen, in the working solution.
Thomas's home shows 711 open exceptions (186 new overnight, 142 closed), the register at 2 amber and 1 red with one change awaiting approval, the material-matter clock at day 2 of 5 and the Q3 board report at 6 of 8 sections, locking October 22. Below are his seven items, each with its deadline, and beside them an “Ask the agents” box with example questions, with what each agent did overnight below it. He can ask about any price, risk, fund or vendor, or tell the agents what to do.
“Approve risk 7 to amber — Priya Raman proposed at 8:41 a.m. · 14 Level 3 positions, $412.6M, priced by one broker for more than 30 days.”
The Price Monitor agent loads 60,214 prices from seven sources and finds 318 stale, 96 tolerance breaks, 214 single-source and 12 halted, including Kurosawa Seiki. The Source Check agent sees 14 Level 3 positions priced only by Halvorsen Securities past 30 days, asks three dealers for second quotes at 6:30 a.m. and reads the borrowers' own reports, one of them in Spanish. The Methods agent back-tests 112 sales from the October 14 trade file. Each result is handed to a named person.
Confidence: 708 results at 85% and above, shown with their evidence; 3 below 85%, handed to a person.
On the valuation risk register, risk 7, single-broker quotes on Level 3 positions, still shows green, with 14 single-source items, 7 back-test misses and 1 vendor issue behind it and Priya Raman's proposal to raise it to amber waiting. Thomas asks the agents about it in plain words. The Methods agent answers that the broker-quote method back-tested at 92.9% within tolerance this quarter, down from 97.0%, with six of its seven misses on Halvorsen quotes. He asks for an independent valuation of Brookmere, and the Source Check agent sends the file to Ostrander Valuation Advisors and logs the request.
Source Check agent: “Their range is due Wednesday, Oct 21, before the board book locks. Until then the price stays where you approve it.”
The Brookmere Aerostructures first lien term loan 2029 — $61.2M, 1.60% of the Strategic Credit Interval Fund — has been priced by Halvorsen Securities at 96.25 for 58 days against a 30-day limit. Bexley & Crane bid 91.50, offered 92.50 and saw it trade at 91.875 on October 8, and the borrower's Q2 lender report shows leverage up to 6.8x from 5.9x. Priya proposed 92.00 at 8:44 a.m. The NAV effect is −$2.70M, −0.07%, below the 0.10% line at which the treasurer must confirm.
“I trust the 92.00 more: it is a bid with a recent trade behind it.” Confidence 91%.
For Vallmora Logística's euro unitranche the agent read the borrower's Q2 2026 quarterly report from the agent bank portal. Page 4 sits in Spanish beside the English, each cited line side by side: adjusted last-twelve-month EBITDA of EUR 41.2 million (EUR 39.8 million at March 31), net financial debt of EUR 196.5 million, leverage of 4.8x, and all covenants met at June 30. The Japanese exchange notice on Kurosawa Seiki is read the same way.
Every figure the agents quote opens the page it came from, in the original language.
Thomas approves Priya's proposal with reason code RC-2, “Policy trigger met”, recorded under his name and role with the date. The register now reads 12 risks, 3 amber and 1 red, with no changes waiting. The board report paragraph re-drafts itself — risk 7 “was raised to amber on October 15, 2026”, and Brookmere “has been referred for an independent valuation due October 21” — and is marked approved and sealed into the Q3 report.
Nobody approves their own proposal: the analyst proposes, the designee approves.
Each fair value method is tested against what the security later sold for, or for foreign equities against the next day's open. The single-dealer broker-quote method ran 98 tests at ±3 points: 92.9% within tolerance against 97% last quarter, 7 misses. Each miss shows the sale, the prior-day price, the gap and the reason, such as a quote unchanged for 41 days before the sale. The agent suggests a method change for a person to propose and the designee to approve.
“Require a second dealer quote within 10 days, not 30, on every Level 3 position priced by a broker; use an independent valuation when none is available.”
Kurosawa Seiki was suspended on the Tokyo exchange on October 13 after disclosing suspected inappropriate accounting at a subsidiary. It is held in the International Small Cap Fund (2.1%) and the Japan Equity Fund (3.4%), $60.1M, fair valued at a 35% discount to the last trade. The agent opened material matter MM-2026-11, counts the business days to the October 20 deadline against an internal target of three, and has drafted the notice with its evidence: the exchange notice in Japanese with English, the impact estimate, the Valuation Committee approval and Laura Bennett's NAV confirmation.
“I opened this matter at 4:12 a.m. on Oct 13, when the exchange notice arrived. Five business days end on Tuesday, Oct 20; your internal target is three.”
The Q3 2026 report for the October 29 Audit and Valuation Committee has six of eight sections drafted, from material fair value matters to halted and suspended securities; two need input. Section 2 now reads 8 risks green, 3 amber and 1 red, every number a link to the evidence behind it. It goes to Laura Bennett, the fund treasurer, for review, then to Thomas to sign, and only then to the board portal.
The Report agent never sends anything to the board: only signed reports are published.
The same night's prices, seen by five of the people who carry the Rule 2a-5 program — what the quarter looked like, and what it looks like now.
Seven agents check every price, find second sources, review vendors, back-test methods and draft the board reports; the analyst proposes, the valuation designee approves, the board sees only signed reports.
Checks every price every night: stale prices unchanged for five or more business days on Level 1 and 2, tolerance breaks against benchmarks by asset class, halted and suspended securities — and links each exception to its valuation risk register risk.
For single-source and broker-quoted positions, asks other dealers for quotes, reads the issuer's or borrower's financials in the original language, compares, and explains which price it trusts and why.
Reads each pricing vendor's due diligence questionnaire and controls report (SOC 1 or ISAE 3402) in its own language — the Milan vendor's questionnaire is in Italian — joins them with the fund's own price challenge record and back-tests, scores the vendor with cited reasons and drafts the annual review.
Back-tests each fair value method against later sale prices, or the next day's open for foreign equities, flags drift and explains every miss.
Drafts the quarterly and annual Rule 2a-5 board reports and the register paragraphs from live counts, and re-drafts when the evidence changes.
Watches for material matters by the board's own definition, opens the matter, counts business days, drafts the notice and chases the designee before the deadline.
Seals every exception, decision and report with its source and hash, and builds the auditor and exam packs.
Maker, checker, NAV confirmation, signed reports only. The agents propose; a named person decides.
Ask in plain words, or tell them what to do. Every answer cites the policy section, quote or report it comes from, and nothing changes without an approval.
Why is risk 7 going amber?
The trigger is any Level 3 position priced from one broker for more than 30 days. Fourteen are, for 31 to 58 days, and the broker-quote method's back-test fell to 92.9%. On Oct 8 nine were over 30 days; the count is rising.
Which funds carry the most single-broker exposure?
By fund: Strategic Credit Interval $149.7M (3.92% of NAV), Floating Rate Income $112.2M (1.75%), High Yield Municipal $36.4M (1.33%), High Yield Bond $63.1M (0.70%), Multi-Sector Income $51.2M (0.46%). The interval fund carries the most.
What about Ashby and Quarry Lane?
Ashby Fitness and Quarry Lane Senior Living had no second quote. For Ashby I suggest a model price of 79.50 from comparable loans; for Quarry Lane, matrix pricing from similar senior-living bonds gives 89.75. Each needs Priya's proposal and your approval.
Refer Brookmere for an independent valuation
Done: I sent Ostrander Valuation Advisors the Brookmere file, the two quotes and the lender report. Their range is due Wednesday, Oct 21, before the board book locks. Until then the price stays where you approve it.
13 screens from the working solution, on its sample data. Pick one to see it large.
The thresholds every price is checked against come from your valuation policy, each row citing its section. The valuation systems administrator proposes a change, the valuation designee approves it, and every change is logged.
| Setting | Default | Choose from |
|---|---|---|
| Stale price | 5 business days unchanged, Level 1 and 2 | Policy §3.2 · a change is proposed by the administrator, approved by the designee |
| Single source, Level 3 | 30 days, then a second quote, an independent valuation or an approved model price | Policy §5.4 |
| Tolerance, investment grade | ±2% day over day against the benchmark | Policy §4.1 · high yield ±3%, loans ±2 points |
| Tolerance, equities | ±10%, or a fair value factor trigger | Policy §4.5 |
| Back-test tolerance | By method, 2% to 10% | Policy §4.9 |
| Materiality (pricing error) | $0.01 per share and 0.50% of net assets | Policy §7.1 |
| Treasurer confirmation | Override NAV effect above 0.10% | Policy §7.2 |
| Material matter clock | 3 business days target, 5 at most | Policy §9.3 |
Every figure is labelled: a target the solution is built to, an estimate, a typical published result, or a proven one.
“demo” = seen in the working solution, on its sample data · “target” = the design goal, measured in the live solution · “estimated” = our estimate from the manual steps · “typical” = published figures (SEC Rule 2a-5, 17 CFR 270.2a-5 — material matters reported no later than five business days; SEC Litigation Release LR-25542 — an alleged mismarking scheme overstating fund values by more than $1 billion; Rule 31a-4, 17 CFR 270.31a-4 — six-year retention). People, firms, funds, issuers and figures named on this page are fictional — characters and sample data in the working solution.
Valuation risk management is how a fund's valuation designee identifies, monitors and controls the risks that a holding is priced wrongly — stale prices, single-source quotes, weak pricing vendors, methods that drift — and reports them to the board under Rule 2a-5. Valuation Risk Management gives the designee seven agents that check every price every night, tie each exception to the valuation risk register, back-test methods, review vendors and draft the board reports, while people propose, approve and sign.
The valuation designee runs the fund's fair value pricing program: it assesses and manages valuation risks, selects, applies and tests fair value methods, oversees pricing services and challenges their prices, reports to the board every quarter and every year, and reports material matters within five business days. Each of those duties has its own screen here: the register, the methods, the vendors, the board reports and the material matters.
The Price Monitor agent checks every price from the nightly file — 60,214 in the demo — for stale prices, tolerance breaks, single-source prices and halted securities. When a Level 3 position passes the policy's 30-day single-broker limit, the Source Check agent runs an independent price verification: it asks other dealers for quotes, reads the borrower's own reports, then explains which price it trusts.
The Methods agent tests each method against what the security later sold for, or for foreign equities against the next day's open, and shows the share within tolerance against last quarter. In the demo it ran 9,842 back-tests in Q3 across seven methods, found 23 misses and flagged the broker-quote method drifting from 97.0% to 92.9%, with every miss explained.
The Vendor Review agent reads each vendor's due diligence questionnaire and SOC 1 or ISAE 3402 report, in its own language, and joins them with the fund's price challenge record and back-tests. It scores the vendor with cited reasons and drafts the annual review; the valuation designee approves it with a reason code.
No. The agents never change a price, a method, a register status, a vendor review or a report, and never contact the board. The pricing analyst proposes, the valuation designee approves with a reason code, the fund treasurer confirms NAV impact above 0.10% of a fund's net assets, and portfolio managers may only add market color.
Rule 31a-4 asks for the documentation behind each fair value determination and the board reports to be kept for at least six years. Every exception, decision and report here sits on an append-only, hash-chained audit trail kept six years, and internal audit can build a watermarked exam pack from it.
The Agentic Solution Engine builds and deploys it from your requirements and documents — your valuation policy, price files, vendor files and past board reports — and it goes live once every quality gate has passed. We will walk you through it on your own prices first.
Every holding bucketed monthly, every override explained, no filing trigger missed.
1-min demoLiquidity Stress TestingEach fund's breach day found and evidenced, and the quarterly pack signed in a day.
1-min demoDerivatives Risk Management ProgramEvery daily VaR test explained in plain words, every escalation signed, no late N-RN.
1-min demoWe'll run Valuation Risk Management on a sample of your own price files, valuation policy and past board reports.