One thing the global financial crisis made clear was the importance of having accurately -- and independently -- priced assets. It may be some time before regulators in Asia require financial institutions to obtain independent valuations for derivatives contracts, but such a move seems likely, given that it is taking place in Europe and the US.
Against this backdrop, independent-valuations firm Pricing Partners opened an office in Singapore earlier this month -- its first in the region -- and plans to hire a valuations expert by early in the second quarter.
"We're looking for someone to support us, especially for valuation and consulting services," says Rosh Rai, who heads the Singapore office. The French firm may relocate a native Chinese mainlander with a PhD from Paris to Hong Kong, but is still open to other possibilities. It also plans to hire more in Asia, but Rai would not give a time scale or target numbers.
As for the challenges of valuing assets in the less liquid markets of Asia, he says: "We are already providing pricing revaluation services to European clients that offer products based on regional [Asian] underlyings."
"When it comes to very illiquid assets, we use more liquid data as proxies for missing data and we work out the spread between the two," Rai adds. "We try different methods until we find the most accurate, and that will vary between asset classes and regions."
The firm offers two main services: its 'pricing library', which provides pricing on anything from vanilla to exotic or hybrid instruments; and it offers a revaluation service -- for more accurate, regular valuations, as market prices move -- for more complex exotic products. It is the former service that Rai expects to attract most interest in the region for the time being.
Pricing Partners has a major focus on buy-side firms such as asset managers, hedge funds and insurance companies, as well as servicing custodians and fund administrators
Rai says the biggest strength of the system is its transparency. "Some black-box companies don't let people know what sort of model or methodology they're using," he says. But Pricing Partners goes so far as to offer a source code for firms that want to build their own pricing model.
Pricing Partners signed an Asia-Pacific-wide distribution agreement in Hong Kong in December with Belatos, which develops, distributes and supports financial software across the region. It is headed by Didier Joannas, a former sales director at software providers such as Sungard and Thomson Reuters in Asia since 2000.
Rai reports to Xavier Deschamps, managing director for sales and marketing, and chief executive Eric Benhamou, who are both based in Paris. Rai has 15 years of sales/business-development experience in Asia, including at Thomson Reuters Financial in both Hong Kong and Singapore.
Pricing Partners provides mathematical models and analytics for derivatives and structured products. It specialises in exotic and hybrid structures, but also covers vanilla instruments, and covers all the major asset classes.
The firm's mostly Europe-based clients include the Belgian Debt Agency, Natixis Asset Management, Oddo Asset Management and Swiss Life, as well as banks such as Societe Generale and Fortis.