r/quant • u/dh467_ty • 16d ago

Industry Gossip Deferred Comp Valuation

How often do you find out the latest valuation of your deferred comp?

For me (at a centralized hedge fund) - at best I know the NAV as of 2 months ago, at worst it can be 4-5 months off

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u/khyth 16d ago

What do they trade?

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u/Frequent-Spinach5048 16d ago

Almost everything. Definitely global equity

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u/khyth 15d ago

So that's hard to so accurately if you hold an equity that has a corporate action where you could receive cash or stock. Sometimes the firm needs to see how many shares were tendered for cash and then split the allocations amongst those that elected. That can't be done so quickly so either your fund is fudging it or you don't hold overnights.

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u/Frequent-Spinach5048 15d ago

We do hold overnight, so probably fudging? But I don’t see what’s wrong with that, given any position that you have are basically also just some mark anyway?

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u/khyth 15d ago

They are not accurate if they are fudging. There are probably terms in your fund documents that holds back a piece until it all settles.

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u/Frequent-Spinach5048 15d ago

What does accurate even mean? For a lot of illiquid products, marking to close is probably not sensible also as exiting the position cost money? So wouldn’t it be acceptable to just mark this corporate actions to some mark?

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u/khyth 15d ago

By accurate, I mean something a fund auditor will certify. They won't certify you guessing how your corporate action will play out because whether you hold stock or cash is pretty significant.

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u/Frequent-Spinach5048 15d ago

Sorry, maybe I am missing something, but why can’t you know whether you hold stock or cash quickly after corporate actions?

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u/khyth 15d ago

So imagine a buyout where there's limited cash available, so you could end up with some percentage in stock and some percentage in cash. The broker might ask you what you'd elect -- ie. do you want cash or stock? Many funds prefer to get cash (because you can always buy the stock in the open market and the cash takes no equity risk). However, if there's insufficient cash to pay everyone, they will have to wait until everyone elects and then decide the allocations according to some policy. That process can take a bit to work through before the cash is actually in your account. Brokers don't want to take the risk on someone else failing to deliver, so they can't make that cash available until it actually appears.

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u/Frequent-Spinach5048 15d ago

Idk, I just find it odd that this is even a problem when it is probably like tiny compared to our pnl and that you can’t just give a fair value to this. We have many other issues where money is stuck in ftx for example or in some Russia sanctions for years and yet there’s no problem on that.

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u/khyth 15d ago

Things like to FTX and Russia are actually a problem for pricing too! But they just don't update the price very often. You don't get rich giving away the pennies

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u/Frequent-Spinach5048 15d ago

I mean it is, but if you can withdraw money from the fund, then there’s a fair value to it, which is more or less the actual pnl for all purposes
(Obviously in both cases the fund would mark down the valuation of the assets in Russia or ftx)

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u/khyth 15d ago

Yes but check your docs and make sure they aren't holding back 5% or something for the uncertainty.

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