Fair value in distress

Although not groundbreaking, the two trends point to wider issues in the industry: whether or not one can predict future performance based on past events, and the problem of fair value.

With respect to the former, data from unquote's performance partner CEPRES (featured on page 42) suggests that investments in financial services made during a banking crisis yield far better results than at any other time. If these stats are anything to go by, Altor and Bure should look forward to stellar returns on their buyout of Swedish investment bank Carnegie. On the other hand, "if past history was all there was to the game, the richest people would be librarians," as Warren Buffett once said.

As for the second point, the debate of fair value is so widespread it has even reached the US SEC, which recently mooted the point that fair value itself may have caused the financial crisis. Fair value aims to price an asset if it were to be sold in the current market conditions.

The principle of it is simple, but the application is near impossible. Regardless of sophisticated analyses, one can argue that fair value at best seems to be little more than a trend analysis. Peer reviews, sector analyses, mark-to-market - the methods are myriad. But when the going price is distressed, does that then represent fair value?

The global reach and impact of the current state of the world economy is unprecedented. Markets must re-adjust and find a new equilibrium; according to one adviser, we will see "a whole new world".

Yours sincerely,

Rikke Lilla Eckhoff

Editor, Nordic unquote"

Tel: +44 20 7484 9824

rikke.lilla-eckhoff@incisivemedia.com.

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