Imagine it is the evening before a quarter-end NAV is due. A routine price check flags an unlisted loan whose valuation has not changed in three quarters. Yet the borrower has just agreed to a second restructuring.
The portfolio manager says the valuation is still reasonable. Nobody else on the team feels comfortable pushing back, so the NAV goes out on time.
If you have worked in fund operations, this probably sounds familiar.
It is also the kind of situation highlighted in the MAS information paper on valuation practices, published on 29 May 2026. Drawing on thematic inspections of fund management companies across different investment strategies, the paper looks at where valuation processes fall short and what managers can do better. Some inspections were carried out by external auditors appointed by MAS.
The paper sets out supervisory expectations rather than new rules, and recognises that smaller fund managers may need a more proportionate approach.
The message is straightforward: valuation problems often come down to weak oversight, not faulty calculations. The numbers may look reasonable, but that does not mean they have been properly checked or challenged.
What MAS found
| Area | What the inspections found | What MAS expects |
|---|---|---|
| Oversight | Some smaller managers allowed portfolio managers to oversee their own valuations. Some committees had no written terms of reference. | Independent oversight by people with the right expertise, supported by clear responsibilities and escalation procedures. |
| Policies | Policies were outdated, not followed or no longer reflected how the firm operated. Deviations were not always recorded. | Up-to-date policies covering every asset class held, including valuation methods, frequency, escalation and record-keeping. |
| Price checks | Stale prices were picked up late, the same tolerance was applied to very different assets, and checks were not always documented. | Regular independent checks using multiple approaches, such as price variance, stale-price monitoring and NAV movement analysis, with tolerances appropriate to each asset class. |
| Third-party valuations | Managers sometimes accepted valuations from administrators and external valuers without sufficient challenge. Due diligence on providers was inconsistent. | Assess providers' independence, expertise and methods before appointment, review them periodically and establish clear criteria for challenging their valuations. |
| Hard-to-value assets | Deterioration in private credit was recognised late, and information from portfolio companies was used in valuation models without sufficient verification. | Documented approaches for illiquid assets, with inputs checked and valuations updated when circumstances change. |
| Investor disclosure | Investors were not always given enough information about the valuation process. | Explain who the third-party valuers are, the manager's role and the valuation methods used. |
Why a valuation error rarely stays a valuation error
One example in the paper stands out. A manager treated loans that had gone bad and been restructured as if they were performing normally again, without reducing their valuations. The result was an overstated NAV and, because management fees were calculated using that NAV, excess fees charged to the fund.
In another case, a fund had no written valuation procedures for its digital assets. Its NAV calculations fell behind, and the fund eventually closed.
Consider what happens when an overstated valuation is discovered months later. The manager may need to recalculate previous NAVs, review transactions made by investors who subscribed or redeemed during that period, return excess fees and explain the issue to investors. Auditors will also want to understand how the problem arose and why it was not caught earlier.
What started as one valuation that nobody challenged can turn into a much larger operational and investor-relations problem.
That is why valuation controls matter. They are not just there to get the numbers right. They help protect the fund and its investors when those numbers turn out to be wrong.
Our take: what this means in practice
1. Independence is about who makes the decision, not who runs the numbers
MAS noted that many managers already rely on third parties, often their fund administrators, for independent valuation checks and NAV reporting. That is a sensible starting point, but outsourcing the work does not remove the manager's responsibility for the outcome.
Imagine an administrator flagging the same stale price for three consecutive quarters. Each time, the exception is closed with a note saying "per manager".
The check may have been performed independently, but has anyone actually challenged the valuation?
Having an independent party review a number only helps if there is a process for investigating concerns, making decisions and documenting the outcome.
2. The real test is what happens when a check flags a problem
A price check might identify a handful of holdings that fall outside the agreed tolerance. That is useful, but identifying an exception is only the beginning.
Someone still needs to investigate it. They need to understand why the price moved, compare it against independent information where available, decide whether the valuation needs to change and record the rationale.
This is also why valuation tolerances should reflect the assets being valued. A threshold that works for a listed bond may tell you very little about an unlisted loan with limited market information.
The important question is not simply whether checks are being run. It is whether the team can show what happened after a check raised a concern.
3. A proportionate process can still be a proper process
Smaller fund managers do not necessarily need large valuation committees or elaborate approval structures. What they do need is someone other than the portfolio manager who can challenge a valuation, and clear rules on who makes the final decision and when issues must be escalated.
The policy should reflect how the firm actually operates, and the team should keep a record of the checks, decisions and exceptions.
These arrangements do not need to be complicated or expensive. What matters is that responsibilities are clear and the process works in practice, rather than existing only on paper.
Where your fund administrator fits in
A fund administrator can take much of the day-to-day work off the manager's hands, from obtaining prices and performing checks to calculating NAV. But the manager and the fund's board still need to oversee the valuation process.
A good administrator should make that oversight easier, not simply deliver a NAV figure and leave the manager to work out whether it is reasonable.
That means providing regular price-check results, highlighting exceptions, explaining material NAV movements and keeping a clear record of who reviewed and approved the numbers.
At Magoran Group, this is how we approach the NAV process: checks and reviews are built into every NAV, and the work behind the numbers is kept so it can be explained when asked.
The aim is straightforward: when someone asks why a holding was valued at a particular price, the team should be able to explain the reasoning and show the work behind it.
One question to ask this week
If MAS asked you tomorrow to show who approved last quarter's valuations, which exceptions were raised and how each one was resolved, how long would it take to pull everything together?
If the answer is longer than an afternoon, it may be worth reviewing the process before the next quarter-end deadline.
If you would like to compare notes, get in touch with Magoran Group. We would be happy to walk you through how we approach price checks, exception reporting and NAV reviews.