Growth Predicted for Pricing and Valuation Vendors
November 11, 2009
Demands for more transparency are driving firms to enhance their pricing and valuation processes, providing a growth opportunity for valuation technology vendors, according to a new report from Boston-based research firm Aite Group, “Pricing and Valuation Services: The Search for Transparency.” As a result, Aite projects in the report that pricing and valuation service industry revenues will grow from $2.1 billion in 2009 to $2.9 billion by the end of 2012, an increase of 38 percent.
Regulators, auditors, investors, fiduciaries, and senior managers are demanding that prices of portfolio assets be justified by rational and consistent pricing and valuation processes, the report said: “The 2008 financial crisis made clear to financial firms the importance of fully understanding the ramifications of the pricing and valuation function, particularly as it relates to market, liquidity and counterparty risks.”
In response, regulatory, accounting and market-driven factors aimed at increasing transparency will compel the industry to revisit and enhance their existing pricing and valuation processes, Aite says, adding that “Third party solutions provide specialized strengths and varied functionalities, and can contribute meaningfully to the pricing and valuation process of many firms.”
The report highlights eight vendors: Interactive Data Corp., OTC Valuations, Statpro, SunGard, SuperDerivatives, Thomson Reuters, Bloomberg and Markit.
Response time to price challenge resolution and asset type/instrument coverage are major determinants in picking a vendor, according to Aite.
Although Thomson Reuters, Interactive Data Corp. and Markit dominate the space, smaller firms will remain relevant and viable, the report said, as client firms often require independent secondary and tertiary pricing sources.
“Greater scrutiny by interested parties, coupled with changing regulations, accounting standards and changing dealer landscapes, have made the pricing and valuation process a high-visibility, high-important business activity,” said John Jay, a senior analyst with Aite and author of the report. “Shoddy prices or unverifiable valuations may have a dramatic negative impact on a business’s financing, compliance, risk management and fees.”
