Published on February 3, 2014
Overview of Portfolio Valuation Services CONFIDENTIAL
Madison Street Capital – Portfolio Valuation Services Table of Contents SECTION 1 SECTION 2 SECTION 3 SECTION 4 SECTION 5 SECTION 6 Introduction Portfolio Valuation Services MSC Valuation Approach & Methodologies Asset Class Expertise 3rd Party Resources MSC Contact Information Private and Confidential 3 6 10 15 20 22 2
SECTION 1 Introduction Private and Confidential
Madison Street Capital Valuation Practice Madison Street Capital specializes in the independent valuation of complex and hard-to-value investments. Our team of experts provide Portfolio Valuation Services across a wide array of asset classes spanning multiple structures, geographic locations and liquidity levels (primarily considered Level III). Our clients are generally focused in the financial services sector, including the following industry sub-groups: – Asset Management • • • • • • – – – – Hedge Funds Private Equity Venture Capital Registered Investment Companies Pensions Foundations and Endowments Banking Insurance Specialty Finance Real Estate Private and Confidential 4
Asset Management Industry Focus Madison Street Capital is a specialist firm when it comes to investment banking and valuation services for Asset Managers. The firm has a specialized Asset Management Industry Focus group that provides financial advisory services in the following 4 categories: M&A ADVISORY • Sell-side and Buy-side Advisory • Divestitures and Strategic Alliances • Capital Introductions • Due Diligence and Transactional Support • Seeding Transactions Private and Confidential VALUATION •Portfolio Valuations (complex, hard -to-value securities) •Monthly, Quarterly, and Annual Pricing Reports •Valuation of Advisor/Management Company •Financial Opinions (Fairness, Solvency, and Other Transaction-based) RESTRUCTURING FINANCIAL SPONSOR COVERAGE • Restructuring (Wind Downs; Side Pockets; Fund Transfers) •Deal-flow generation through: • Recapitalization (Loan Workouts; Refinancing) -Private Placements -Debt Financings -Structured Debt/Equity • Asset Disposal and Liquidations • Distressed Debt • Management Company Reorganizations •Secondary Market Transactions • Access to Private/Public Company Portfolios and Transactions 5
SECTION 2 Portfolio Valuation Services Private and Confidential
Portfolio Valuation Services Transparent Valuation in a Complex World The last few years have demonstrated the severe risks caused by inadequate disclosure regarding complex and hard-to-value investments. In a world that favors liquidity and transparency, the need for independent and supportable portfolio valuations has never been greater. Given the material impact that the measurement of certain riskier or private investments can have on the Net Asset Value, it is instrumental to have a professional firm like Madison Street Capital that has the technical and practical experience to assist in providing correct and accurate fair values. With the convergence and adoption of tighter global financial accounting standards, firms that hold Level II and III assets are increasingly being demanded by auditors (and investors) to support the validity and integrity of their methodologies and marks. That support often is best provided by an outside firm that has deep expertise with the types of investments and the unique risks that each structure presents. Private and Confidential 7
Portfolio Valuation Services (Cont’d) Madison Street Capital provides a full range of valuation advisory services to asset management firms around the world by combining technical expertise with best practice modeling techniques. The following factors differentiate us from our competitors: Independence and Objectivity Madison is an independent boutique firm that specializes in the asset management industry and does not encounter the conflicts of interest that other multi-disciplinary investment banks and valuation firms face. Further, our process is predicated on objectivity and transparency – we work in a professional, unbiased manner with our clients to achieve accurate and supportable results. Technical Knowledge Our depth of knowledge in valuing the universe of hard-to-value and complex investments is unparalleled. Our teams keep current with industry best standards, whether it be regulatory or accounting driven. Further, we utilize the most cutting-edge technology in terms of valuation models and draw-up on the most relevant 3rd party data resources. Industry Experience We are known for our asset management industry experience and have worked with all varieties of asset managers on many different types of projects. There are not many scenarios where we do not have the experience or know-how to resolve an issue, in the rare instance that we don’t, we have access to the right resources to find the answer. Seasoned Professionals Madison’s team are comprised of valuation experts who not only have the necessary accreditations and deep product knowledge, but also are very experienced working with clients and their auditors (and other external parties) to go through the valuation process in a seamless and highly efficient manner. Private and Confidential 8
Portfolio Valuation Services (Cont’d) Madison Street Capital’s reputation as a premier service provider to Asset Managers is built upon years of extensive industry knowledge combined with highest levels quality and service. Our professionals consistently exceed the expectations of our clients. Our delivery starts with identifying our client’s needs, creating a customized work plan and then executing in a highly sophisticated and responsive manner. MSC combines technical expertise with best practice modeling techniques to perform complex Portfolio Valuation Services. The MSC team: • Understands the need for independence in these times of heightened scrutiny. Our practice is built on a commitment to eliminating conflicts of interest and ensuring our analyses are objective and unbiased; • Provides clear, concise, and transparent analyses and reports which are ASC 820/IAS 39 compliant and have been reviewed and accepted by the “Big 4” audit firms; • Employs sophisticated methodology when it comes to pricing and uses the most current mark-to-market pricing technology available. Private and Confidential 9
SECTION 3 MSC Valuation Approach & Methodologies Private and Confidential
Complex Valuation Methodology MSC employs fundamental valuation approaches based upon the structure and risks associated with a particular security. Methodologies used in the past have included: • • • • • • • • • • Monte Carlo Simulation Binomial trees Trinomial trees Scenario analysis Credit derivative models Standard mortgage models assuming prepayment and cumulative losses Decision tree analysis Exotic derivative cash-flow models Comparable security analysis Precedent transaction models Private and Confidential 11
Portfolio Valuation Report Formats MSC provides fair values of complex and hard-to-value investments for clients consistently and reliably. Marks and reports may be provided daily, monthly, quarterly, semi-annually, annually, or on an as needed basis. The following are types of deliverables that MSC can provide: • Full Report – • Summary Report – • Robust report detailing current market environment for the Investments; Market and company specific factors affecting the Investments; Detailed analyses of assumptions and calculations used to arrive at the valuation opinion. High-level summarization of the Full Report deliverable that is more compact but covers the main Quantitative points at a lower cost. Marks Only – Direct pricing of securities with no accompanying valuation schedules or verbiage. Private and Confidential 12
On-Going Experience/Client Communication Madison Street Capital provides on-going valuation services to several of its clients, especially as it pertains to the periodic updating of fair value estimates. MSC is proactive with its clients to keep abreast of current developments. Although our approach takes into consideration changes to internal and external factors, we understand the need for consistency and our senior reviewers ensure that there are no significant fluctuations in the value (unless there are extraordinary causes that would warrant it). Upon completion of initial due diligence and conducting its independent valuation analyses, a draft summary of the valuation is provided to the client. This allows the client to provide initial feedback on the assumptions and preliminary conclusions, prior to sending the final report. The nature of feedback is typically potential factual inconsistencies versus subjective differences of opinion, which is in adherence with our independence policy. Our findings and analyses are well-documented in a written report with our assumptions and valuation methodologies clearly explained and supported. Additionally, our detailed reports and documentation increase management efficiencies throughout the audit and financial reporting processes. Private and Confidential 13
On-Going Experience/Client Communication (cont’d) As a firm policy, the team assigned on the engagement from Madison Street Capital is always made available to the client, regardless of level of seniority. We believe that this is an important component of the on-going communication process and helps identify potential issues well in advance. Another important component to our service offering is that we try to take full advantage of all the resources that are made available. For example, as an investment bank, we are able to draw upon certain capital market data that can be useful in supporting our valuations of hardto-value and complex securities where there is limited public data. Finally, our methodology is predicated on transparency and the ability to re-perform it. We believe that this an important attribute to the audit process and enables our clients’ auditors to test our work product in the most efficient manner. Our senior professionals have dealt with Big 4 auditors (and other firms) in the past on numerous occasions and are familiar with the different review processes that each firm has. Given the transparent nature of our work, this process usually goes smoothly without any significant issues. Private and Confidential 14
SECTION 4 Asset Class Expertise Private and Confidential
MSC Valuation Expertise MSC has extensive experience performing valuations of the following Private/Direct Equity and Debt Investments: • • • • • • • Common and Preferred Equity investments in Private Companies Thinly Traded Public Equity or Debt Equity Investments across a wide array of industries Emerging market private equity and debt PIPE’s Defaulted and Distressed private debt Limited Partnership Units Private and Confidential 16
MSC Valuation Expertise (Cont’d) MSC has extensive experience performing valuations of the following Fixed Income Instruments and Loan Portfolios: • • • • • • • • • Auction Rate Securities - Student Loan, Municipal, Closed-end, Insurance trust, contingent capital, CDO, CLN, CDPC, etc. Cash and Synthetic CDO & CDO2’s Credit Default Swaps - Single-Name, Standard Index, Bespoke Trust Preferred Securities Credit Linked Notes Agency Notes & Preferred RMBS – Agency, Alt-a, Subprime, CES, HELOC, etc. CMBS Insurance-linked Securities Private and Confidential 17
MSC Valuation Expertise (Cont’d) MSC has extensive experience performing valuations of the following Derivative Securities: • • • • • • • • Life Settlements and Premium Finance Real estate loans (and REO) 2nd lien /Junior /unsecured/subordinated loans Prime and sub-prime consumer debt such as auto receivables Legal lines/Law Firm loans Film Financing Loans Royalty Streams Trade Finance Private and Confidential 18
MSC Valuation Expertise (Cont’d) MSC has extensive experience performing valuations of the following Derivative Securities: • • • • • • Credit default swaps Certain convertible securities Energy derivatives (exotic swap/forward/option structures) Interest rate derivatives Currency derivatives Exotic OTC options Private and Confidential 19
SECTION 5 3rd Party Resources Private and Confidential
3rd Party Resources Private and Confidential 21
SECTION 6 MSC Contact Information Private and Confidential
About Madison Street Capital MADISON STREET CAPITAL is an independent investment banking and valuation firm committed to the highest standards of integrity and service in providing financial advisory, financing services, valuation services, and restructuring services to public and private firms. Madison Street Capital has focused expertise in partnering with middle-market firms to successfully navigate complex transactions and successfully assist clients in optimizing their company's potential. Madison Street Capital's experienced professionals serve clients across the globe from offices in North America, Asia, and Africa. Securities offered through MSC-BD, LLC, member of FINRA/ SIPC. We combine analytical precision with in-depth industry knowledge to address even the most sophisticated valuation challenges Our approach exceeds regulatory compliance requirements concerning corporate valuation, financial reporting, tax, and litigation support. Madison’s valuations are objective, independent, defensible, and thoroughly documented in order to meet the heightened requirements of regulatory agencies, auditors, and legal bodies. Private and Confidential 23
For more information please contact : Karl D’Cunha, CA Senior Managing Director 105 W. Madison Street, Suite 1200 Chicago, IL, 60602 (312) 529-7000 email@example.com
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