IFIC prepares fair value protocol as Iraq conflict nears

(March 19, 2003) The Investment Funds Institute of Canada is preparing to organize a conference call on fair value for securities in case of possible market disruptions related to the Iraq conflict. The fair value conference call was last used in the days following the September 11 terror attacks.

IFIC began work on the fair value concept three years ago to deal with the issue of pricing securities in times of crisis. Mutual fund managers have to come up with a daily price for their funds, even if some of the assets in the portfolio didn’t trade that day, or if the value of a security is affected by a major world event, explains John Mountain, IFIC’s vice-president of regulation.

For example, Mountain points to managers with assets that are listed and traded in Europe and Asia. Those markets close hours before North American exchanges, but most trust deeds call for fund prices to be set at 4 p.m. eastern time.

“So if something happens after the close in Europe that could have an impact on the value of your assets listed there, you’re into a situation where you need to do some analysis about what the impact is so that you can establish a value for your fund here in Canada,” he says.

“We’re talking about events that occur after the close of markets that makes you think that the closing price for the security is no longer valid,” Mountain adds.

On Monday, IFIC sent out an e-mail asking for feedback on fair valuing portfolio assets after several members expressed concerns about the Iraq situation. IFIC members will decide if and when a conference call is necessary, Mountain tells Advisor.ca.

“They’re in the best position to be tracking those events,” adds IFIC senior counsel Leslie Byberg.

Response to IFIC’s initiative has been positive. “Members are very pleased that we’ve taken the initiative to be prepared in case something does happen,” Mountain says. “If you think back to September 11, it was a huge help to our industry that we had that expertise.”

A U.S.-led attack on Iraq appears all but certain. U.S. President Bush has given Saddam Hussein until tonight to leave Iraq or face military action. The Iraqi government has already rejected the American ultimatum. Reports today indicate U.S and British troops in Kuwait are already moving toward the Iraqi border.

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Need help trying to allay your clients’ worries in these uncertain times? Check out Advisor.ca’s special package entitled “Combatting uncertainty: Five essential tools to ease client anxiety now” in the Practice Zone or click here.

How are you dealing with clients who express concerns about Iraq? Join in the conversation that’s already started on the Iraqi crisis in the “Free for All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca