ASC 820 Whitepaper

1. ASC 820

Fair Value Measurement:

Best Practices for Implementation and Compliance
for the Alternative Investment Industry

2013 Update

Rothstein Kass

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3. Rothstein Kass
January 2018

(Dear Cents and Friends:

Rothstein Kass please to present his updated implementation and complance guido relating te Financial Accounting Standards
Board (FASS) Accounting Standards Coaication Topic 820 Fr Value Measurement VASC 820",

‘As aleading international professional services tem providing au, tx aná consulting services to an ray of sophisticated and
{scoring cents, Rlhslin Kass is proud of our association with the alamalho investment community. Ourcolaboratve cuture has
‘enabled oun to grow alongside the dust rough extensive ad frequent interactions wth our chant, he amants and
sonice providers, We boteve hat is guide representa practical approach o Implomening and complying wit the equrerents ot
ASC 820 including sample Inancal statement footnotes and a Frequently Asked Questons section

Vio befor the onset othe global crei ris, o FASB had akon stops to reconcio disparate conceptions off value” as dened
Inthe US. GAAP erre and in convergence with he International Financia Reporting Standards IFRS.A good porton of hase
fois has canteted on the development of consistent valuation standards for quid or "Leva "holdings, and of escosures that
“manos transparency onthe valuation techniques, processes and input for investments which require significant management
Judgment in valuation. Moet recent, ne Dodd-Frank Act of 2010 has place a senses focus on valuation under ASC 820 as hey rk
ara inthe oporatons of atrratv investment funds and one that neds specie regulation and montoring. The US. Secures and
Exchange Commission and the Pubic Company Accounting Oversight Board have emphasized management responsi i fair
‘valve measurements tat ey on quotes provided by third party pricing services and broker-dealers, and fr te implementation,
documentation and escosur of valuation processes and procedures. In ation, na implementation af the Dodd-Fank Act and
‘of tho 2012 European Markt infrastructure Regulation (EMIR bringing about a sweeping change in the way swap contracts are
transacted and pre inthe global makes, which wil gica att Torla Haan reporting requirements under US,
GAAP and IFRS.

“The Dodd-Frank Actin he U.S. and EMIR as well asthe Altemaive Investment Fund Managers Directiva in Europe reflect an
Informed and reasoned approach to industry reguation, Implemented in concert wih enhances far valve guidelines, thse forts
Aare helping provide the greater level o transparency thatthe market demands. Tansparency wil be oven more crtca as asset
‘tows ram inetutona investors alow a greater portion of Americans to gain access tothe tematve investment industry through
{heir participation In pension pans. Needlass to say, the FASB has tremendous relevance tothe financial services industry ASC
820 offers a ramework fr comparabity and consistency thats promoting insttutional-quaity best practices the global markets
across our industry

inte ou interino clay the fundamental aspects of ASC 620, ssi clear hat fr valve remains. a at, nota cinco, We are
content hat you wil in ths paper informe and helpful, Paase reach out tm, Jt Schwartz or ny of he prnepas in our
Financial Services Group if we can ba of assistance

AL Or

Howard Atman

(Go-CEO and Co-Managing Principal
Rotnten Kass

Rothstein Kass 1

4. Rothstein Kass

ASC 820 - Fair Value Measurement:
Best Practices for Implementation
and Compliance for the Alternative
Investment Industry - 2013 Update

Overview

Financial Accounting Standards Board FASB") Accounting
Standards Oodiicaion "ASO" othe “Codification” Topic
820, Fair Value Measurement CASC 820") ormerty FASB.
Statement No. 157 Fair Value Measurements isthe sole
‘source for authoritative guidance on how entities should
measure and ciclose fir vale inthe financial statements
under U.S. general accepted accounting principles
CUS. GAAP" This updated white paper provides practical
‘uidance on certain provisions inthe Codification that
ect the atarmative investment Industry (0.9 hedge funds,
private equty funds and fund of funds), herein reterred

Lo 28 Wade)” Most notably, the whitepaper addressae
some key implementation issues esting from the release
ol FASB Accounting Standards Update FSU") No. 201
(04, Fair Value Measurement (Tope 820, Amendments o
‘Achieve Common Far Value Measurement and Disclosure
Requirements in US. GAAP and ¡FASS in May 2011.

FASES most econ guidanco on fa value measurementin ASU
2011-08 1 the eeu of FASES fort to create a uniform st ot
'gh-quality global accouning standard in convergence with

‘he International Financial Reporting Standards (IFRS issued
by the ntemational Accounting Standards Board (IASB), ASU
2011-08 includes bot eae and changes to ar value
‘guidance, providing aconsistontdefintion fair valu between
US. GAAP and IFRS and signicanty expanding the dci
requirements related t vestments that ae class in Love!
ofthe fa value Herren. These clarifications and changes
ASC 820 ar intended t result in more useful and accurate
‘nancial statements ad in grater comparably nth feancat
‘statements of enti nat operate inthe global markets

‘Among sky changes to the Codification, ASU 2011-0

+ inroucas the requrement to císcioso th valuation processo
eed for tata value mescurement o investments categorized
within Lovet dof the fae value rare

+ introduces the requirement to presenta quattatve soeur
ofthe signifiant unobservable inputs used in ar valve

+ introduces tho roqurament 1 present a narrative description
‘of tho sans of he fr valve measurement o changes in
unobservable inputs (pubic entes ony

Rothstein Kass 3

5. + roquios decoro of any ransfrs between Level ad Level
2 or pubic entities Prior to ASU 2011-04, al funds (pubic
entities and nonpubte entities) wore required to disclose
any significant transfers between Lovl 1 and Level 2. For
nonpublic entities, the disclosure of ranstrs between Level 1
and Level 2 no longer required,
Claris that contol premiums and noncontrling discounts
can be applod under Level2 and Level 3 of tho air valve
hierarchy
introduces the possibly o measur the fr alu ofa portato
of asset and labios on a nat basis under the net porto
‘exception oran requirements ar said, and to apply
any related market ek o erect ak adjustment othe nt
position, as an altornative to measuring each asset and
abaya the portfolio on astand-alone bass.

ASU 2011.04 1 les ori and anual prods begining
for Dacomber 15, 201 for public entities and for annual
periods beginning ator December 15, 2011 (tfetivaly
December 31, 2012 fiscal year-end) for nonpublic et

What is Fair Value?

‘ASC 820 deines far value as the “price that would be
vod to sell an asset or paid to ransor a ability in

an order transaction between market participants atthe
‘measurement date” It takes on an “exit price" approach
Prior to the adoption of ASC 820, many measures of fie
valve under US. GAAP were based upon the entry price or
management’ “good fat” measurement. Under current
US. GAAP, the entry price cannot be presumed to be
represents of far value at inital recognition. Transactions
‘between related parties or under duress (forced sales")
are examples that may proclude an entry pice trom
approximating ar valve. addition, thre may be instances
in whieh the intial transaction occur in a market diferent
than the market hat a fund would have access to in exiting
‘th investment. For example, a broker may transact in an
{eter dealer market which ie not availabe tothe fund. In

Addition, entry ricos incl transaction cost that may not
be recoverable in an ext price. These principes open the
orto potentially recognizing "day one” gains and losses
on transactions.

Fai value continues to be measured using al assumptions
ied by marketplace participants nckdng sk assumptions
considered by thse paricipans. The measurement of fair
valo assumes an orderly transaction in the principal market or
tho asst or ability under eurent market confins. However,
hen thor ia signifcant decrease in ne volume and level
cof market act for an asta rly, and transaction in
Particular market are not order, ASC 820 provides additional
uidanco to datomino tae valu under such creumstances.

A quoted price in an ae markt general provides the most
relie evidence of far valve and should be used without
gjustment to measure far vue whenever avilable For qui
scutes her a market may not ox, fund must domlop.

a far value approach based upon a hypothetical markt which
incorportes assumptons potential market paricipart would
use n purchasing the seur.

What is the Principal Market?

ASC 820 defines the “principal market” as the markt wth
the greatest volume or level act forthe asset or bit:
‘The markt where a fund normaly entra into transactions ls
presumed tobe the principal make, uniss there is ovidence
to the contrary In aston, the principal market must bo
cesta to the fund

la fund cannot identity a principal market, orit cannot access
it. no fund shoud uso the most adiantageous markt to
aro at far vaio, Tho "most advantagoous market iso
mark that would assign the highest ar valu to an asset or
the lowest fair valo in transferring a ability, after taking into
account transaction cost. The use of the most advantageous
mark when multiple market exist goes agaist the gain of
“conservatism” but this is clearly what the FASB intone.

4 Rothstein Kass

6. Rothstein Kass

‘Applying Valuation Techniques

{Under ASC 820, a fund should use valuation techniques
‘that are appropriate in the crcumstances and for which
sufficient data are ala to measur far valve, maximizing
‘tho use of relevant observable inputs and minimizing tho use
‘of unobservable inputs. ASC 820 defines threo valuation
approaches for fl value measurement as flows:

‘+ Market Approach: his approach uses prices and other
‘elovant information generated by market wansactions
Invoking identical or similar assets and abit, or a group
‘of assets and lablites (such as a business). Examples.

Include the use of market quotes for exchange-traded
‘Secures, max pricing and the use of market multiples
derived from a set of comparable companies inthe
‘valuation of a private equity investment.

Income Approach: this approach converts future amounts
{for example cas ws or earrings toa single cuen
(that, discounted) amount. When the income approach
8 used, the ar value measurement ects curent
‘market expectations about those futur assets. Examples
include present vale techniques such as discounted cash
low models based on mul of EBITDA or revenues,
and the Black cholos Merton option pricing model

(Cost Approach: tis approach reis the amount that
‘would be required to replace the sevice capacity of an
asset atthe measurement dato. ASC 820 carios that
“cost is intended to reer to the current replacement
‘cost of an asst, rather than tot nal transaction.

cost. Within the context of ASC 820, the cost approach
{or valuation is intended fr application to noninancia
ots, such a tho valuation 0 impalrmont of ong. voa!
‘tots under ASC 360 othe valuation of assets and
bios acquired ina business combination under ASC
805. with respect to financial assats, Io acquisiton cost
‘of aninvestment may approximate a market approach i
acquisition costs based on tho most cont arm's length
‘transaction, however funds shoul stil favor the use of

a valuation approach which ulzes inputs that are more
‘observable and relevant, and aro obtainable without
‘und cost and effort.

In somo cases, single valuation technique wl be appropriate
(for example, when valuing an asset or alabity using quoted
ricos in active marks). In other eases, multiple vatation
techniques wil be appropriate (rinstanco, when valuing an
investment ina private operating compan). multiple vakation
techniques are used, tho results sal bo evaluated considerng
the reasonabloness ofthe range ol values indicated by those
‘outs. To weighting of each valuation tocniquo wal equi
Judgment by the und.

{mo transaction price determined to be fir value at ina
recognition and a valuation technique that uses unobservable
Inputs usado measure fa value in subsequent pario,
‘he valuation technique must bo calrated so that at intial
cognition te resulto tho valuation technique oquals the
transaction price. Gaibration ensures that he valuation
technique reflects current market conditions, and tape
fund o determine water an adjustment othe valuation
techniques necessary for instanca, thee might bo a
characteristic of tho asst or Kabity thats not captured

‘by the valuation technique) After nal recognition, when
‘measuring fair valve using a valuation technique that uses
‘unebservabie inputs, a fund must ensure that tho valuation
technique calbrated to relect observable market data at
‘the measurement date.

‘Valuation techniques shou be applied consstety. A change
in valuation techniques appropriate ithe change rest in

‘a measurement thats equal or more representative of fair
valo inthe crcumstancos, o instance new market develop,
‘market conos change new information becomes avaiable,
‘ho valuation technique improves, and/or information provousy
‘sedis no longer avaiable. Any changein method should be
‘wad asa change in accountng estimate and tho resulting
impact on fa valuo shouldbe recordedin nt gain oss) on
investments in the statoment of operations in the accounting
pare ofthe chango.

Rothstein Kass 5

7. What Are Observable Inputs?

Obsorvabi inputs ar inputs that are developed using market
data such as publ avala information about actual cash
‘ows or transactions and that rf! the assumptions that
mask patipants would use whan ring the asset or tabi.
(Observable inputs shouldbe ready availabe to participants

in to mart and shout note ted information thats
‘onl valable othe entity making the ar valve determination
Corto asma group of usrs.In ation, observable market
Inputs shouldincude a oval of ranspareney that is roble and
variable. Obsorvabl markt inputs ar ypialy a by-product
‘of having sources that are knowledgeable and active inthe
articular market. Management wil have to uso ts judgment

10 evaluat whether mar inputs aro “observable”

What are Unobservable Inputs?

nen observable inputs are not availabe without undue cost or
too ulicion to support a al value measurement, fund
hate to use“ unobservable" inputs inthe valuation ASC 820
afines unobservable input as inputs for whic market data aro
nat avala and ha re developed using the best information
avaiable about the assumptions that markt patcipans would
use when pricing the asset o abit. Unobserable inputs may
inclue inputs that are developed by the fund. for instance using
modos 1 extrapolate historical vais nth valuation ofan
‘option contact, as wall as inputs developed by thed partes,
such a indicativo broker doalr quotes in quid mart oro
value ofan investment na pvato operating company provided
by athirpary valuation special

What is the Fair Value Hierarchy?

(One of the most signifiant elements of ASC 820 is he uso of
a thoo-1ve fa vato hirarhy for tho classitieation of inputs
In far value measurement. The tree levels ofthe far value
Norah and he significant valuation inputs under ASC 820
are as flows:

Levelt Input include tho most obeorvabl” puts 10 ar

air valve (2. quid investment), such as unadjusted
‘quoted prices or amical assets o abies inactive makots
(09. exchange-traded secure). ASC 820 deines an “acne
market a8 a markt in which transactions forthe asset or
Habit take place wit sffiint frequency and volume to
Provid pricing information on an ongoing bass.

Level2 Inputs include observable input other than quoted
‘prices used to value Level 1 secures, suchas quoted prices
tor kdonical assets and/or tables in markets that are not
active (9. thinly traded secures quoted prices for similar
assets andor lables, reste secures, priv
Investments in publi companies, et), or market inputs
‘other than dect observable quoted price. These “other
‘market input” are often used in conunetion with valuation
‘models and goneraly include interest rates and yield curves
‘observaboat comment quoted intervals, implied volasiios
and ar market corroborated inputs,

Level Inputs - incl inputs that ro not current observable
(09, strclvlatity in an opton-priing mode, funds own
data or assumptions such asa mutpl of samings or scoured
cash tou projections, et)

‘ASC 820 emphasizes th need to ovate within the threo tvel
Hierarchy 2s high as possible to maximize the use o observable
Inputs. For example, fan izes barbe inputs in an
‘order market to determino fa vals, suchas markt prices
‘tom an exchange o dealer mart, no funds precluded

‘tom using an internal vetation model (e decounted cash
ou mode! and cannot ignoro ready alle markt prices
However the mor quid the investment, the greater need
‘x to uso mul valuation echriques oar at fa valve,

‘Tho love designation inthe far valve Nerarchy i based
‘onthe lowest level input hati significant to tn far valve

measurement. Tn arm “significant is not defined by ASC
820. In assossing the significance of an input a fund should

6 Rothstein Kass

8. Rothstein Kass

consider the sony ofthe Inancialinsumont' fae value
te changes in the input used. Assessing the significance of

an input wil equi judgment considering actors specific

to the financial instrument being valued. Fr funds, no tone
rom the top should be one of conservatism in assigning lvel
‘designations to secures with unobservable inputs. By the
design ofthe principtes-based standard, detaining the
signieance ofan input sa mater of udgmont. Consoquanty,
‘wo unrlated funds assigning level designations to the same
Investment using similar unobservable inputs may reach
ire conclusions.

Please refer o Exhibit 1 ora mario the levels and
‘xampes of meurt that typically fal within each Ivo.

Considerations for Fair Value
Measurement

Determining Fair Value When a Market is
“Inactive” and Transactions Are “Not Orderly"

As rest ofthe financial cris of 2008 and of he European
dob ris, addiional far value measurement guidance
‘was issued to address ckcumstances when the volume

And ove of actvty ofan asset or lay have sigifeanty
‘decreased and when a tansactonis deemed “nt order”
‘This guidance reintorces th notion tat far valve is based on
or transaction under current marketplace assumption,
Therefore, unds are not compote to el on quotations
which eet esse transactions. However, is also
Inappropriate to apply a "old-o-maturty” approach to far
valo 010 use assumptions based on “normatzed” market
Conditions. When current prices are not indicate of oderty
market transactions, funds should ute tomate valuation
techniques to estimate far valve under current market
condions.

ion dotoining fr valo, funds shoud considor whet
{actors exist tat indicate a significant decrease nthe volume

and lve of activity for an asst or Fabi by comparing those
loves to normal ives of market activity. Tose factors include,
ut are not ited to whether

+ There ro few recent transactions.
+ Pie potato rent deelped using cen information
+ Price quotations vary substantall ler overtime or
among market makers or example, in some brokered
markets,
indices that previouly were highly correiate with the
{air valves ofthe asset orlabilty are damonstably
uncorrelated wth recent inicatons of fair valve for that
asset or laity
‘Thore isa significant increase in impiodlquiy risk
premiums, iso, or performance indicators (such
as delinquency rates or loss covers) for observed
‘transactions or quoted prices when compared with the
funds estimate of expectod cash lows, considering
all avatabie market data about ered and other
‘nonpertormance risk forthe asset or laity
‘Tres a wide bid-ask spread o significant increas in
the Disk spread
‘There significant decine nthe activity of, or there is
an absence ofa market fornewlsuances that, primary
‘mara fr tho asst or abi or Similar asst o fabs
le information is publi avale (or example, or
‘wansactons that ako place in a pinipalto- principal
sare).
There i mited public lat for an investment closely
hold bya fund, or by a syndicate of investors which
‘the fund participates in (or example, a sponsored
Ccovinestmont struct)

‘Signicat judgment may be required to determine whether
re hasbeen a significant decrease in ho volume an level
of acti for theassot or ability based on the weight of ho
‘evidence. When the markt has become lees acte ors no
longer active, ther an increased Ikeihood of eistossed or
{forced transactions undorying market transactions. Theretoro

Rothstein Kass 7

9. ‘quoted prices becom loss abl indicators ofa alo. In
‘ekcumstances where there has been a significant decrease
into volume and el o activity for an asst ra ab.
In relation 1 normal mart activity, addons steps shoud
‘be kon to determino whethor or valuation techniques
and inputs are needed to meet the objective o far valve

Ati not appropriate to presume that al ransactons in an inactivo
market are not orderly fat is, cstrossed or forced} th fund
‘concludes that hore has been a signiicantdocrease in he
volume and ovo of activ forthe asset or abit in relation
tw normal market activiy, the fund should consider whether
reumstances ei that indiato that transactions associated
itn the quoted prices are not order Such circumstances
Include, but ar not imite to whether:

+ Thore was not adequate exposure tothe market fora
period botore the massuremont dat to allow for matkating
aciviis that are usual and customary fer transaction
moving such asses ratios under eurent market
concions.

+ Thor was a usual and customary marketing perce, but
ne sale marketed the asset or abit oa singe market
participant.

+ Tho sole is nor near barkrupty o ecelvership thats,
the sale is distressed) or the sale was require t sel
0 meet reguatory or legal requirements (hati, th sole
was orcas

+ Tho transaction price fan outer when compared with
‘other rant transactions fr the same or simiar ass
ray

‘The ehalonge for most funde is having suliion market
intligenco avaibie to evaluat whether a transaction is
“orden” oriit sa “stressed” e “orcad” sale. In situations
ere funds donot have enough information to conclude one
way or th or on water its an orde transaction, the
und shoud stil consider th transaction pic a an input in

ústimatin far valve. However it should not be the solo asis
Le ave at faivalue. AU information thats avala without
‘undue cost and ofot shouldbe considered.

The best practices to employ multiple valuation techniques.
‘fund should place less weight on transactions which
‘the fund does not have sufciant information to conclude
wether transactions are order when compared with
‘other transactions that are known to be order. The use of
broker quote and pricing servicos ae common valuation
techniques employed by funds. Tho fund must attempt to
‘obtain transparency rom the sources ofthese fair valve
‘estimates and make a determination of whether the quotes
are based upon eurent information that rois orderly
‘transactions ora valuation technique that reflects market
participant assumptions.

Application of Fair Value Measurement
to Liabilities

abies aro measured at far valve based on Io premise
‘hata iby is valued based onthe amount agreed-upon in
an ordey transaction between market participants to ranstor |
‘the Habit om one party o another, and assumes hat the
‘onpertomance risks the same before an ato the transfer
"Namely itis assumed that a labity would not be set with
the original counterparty or otherwise extinguished on the
measurement dato.

‘Tne notion of determining the ut pce ofa ablity based
on the price that wou be received to anse the laity

has raised many implomenaton questions. a quoted pice
nan activa make forthe identical abt is avala,

‘the quote price shouldbe used and would rpeesant a

Level 1 measurement. However, the avalabäty of relevant
‘bsorable inputs o determine the fr valve habit can
be imite. Certain labs ar unable tobe waded inthe open
-markaplace due to contractor the lega! restrictions which
‘prow ho transfor. Asa rest, questions have ann on

8 Rothstein Kass

10. Rothstein Kass

howto dotormino the ar valve o ala in a potes
transaction when the lab is estcio rom being transfered,
cor when sufcent observable market data are not aval

In rcumstancos in which a quoted pr in an active market
foc the dential bit Is not avatabo, a fund shall measure

fair value as follows

a. Using the quoted prices in an active market forthe
idonical Hablly held by another party as an asset at
‘the measurement dato i avaiable.

the pce in a) not availabe, using other observo
Inputs, such asthe quoted pice in a market hats tac
forte drial m held y anor party san ase.

€: Ho observable prices ina) and) ae not availabe, using
another valuation technique such as an income approach
(or example, a present value technique that takes ito
‘account the future cash How that a market participant
‘would expect to receiv rom holding the iabiy a an
asset) or a market approach for instance using quoted
prices for similar abies la by other parts as assets,

Funds should adjust the quoted price of a abi hd by
another party as an asset only there are factors specific to
tho asset nat ar not applicable 1 the far valve measuramant
fire Habt. They should also ensure that he price ofthe
asset does not reflect he act of any restrcions preventing
tho transfer ofthe Habt, a ti assumed hat ho impact

of suehretrictons bul nto the value ofthe ably at
Inception. is important t note that any adjustment tthe
‘uated rice when traded as an asset would preclide Levelt
classfcaion. Some factors that may indicate that th quoted
ice ofthe asset shouldbe adjusted include te folowing

a. The quoted price forthe asso relatos toa similar ut not
idontical Halt traded as an asst.

b. Tho un of account for he waded assets ferent rom
that of tho habit (0. the quoted price forthe assot
includes tho elec of a thie party erst enhancement.

nen measuring tho fi value 01a Habäty using a valuation
technique consistent with the principles of ASC 820, funds
‘should consider whether mark inputs are derived rom ore
‘transactions, as wal as whother intemal valuations may bo
more representative o far valve when tho volume and evel

‘of act for the market have significantly decreased,

Funds should consider the let of har own nonpartormanco.
‘ik when doting he far alo of abies. This can rest
in a soomingly counterintuitive valuation result, as a decino

Ina tunes credtwortinass would esut na lower fa value
‘measurement for aabt (eg. a higher scout ate applied
tw expected cashflows), herlor resulting nthe recognition
‘ofan uneatzod gan, However, to far valo of th nstrumont
‘shouldbe considered from the perspective of a market
participant creditor: that i, the credit impairment ofthe
{debtor would rosulin a reduction in alu o the creditos In
dalton, the existence of master netting arangement should
be considered when detormining theta valo of mania
‘abies transacte with counterparties.

Measuring the Fair Value of Financial Instruments,
‘That Are Managed Within a Portfolio,

Sonaraly. rancia assets and Habäties ae valved on a
‘stand-alone basis based on hairincvidual unit of account
land natn combination with other assets and abit hal
in a group. However, tho guidance issued in ASU 2011-08
provides an exception t this promise for instances whore a
fund manages a group of financial assets and lables held
porto based on the fund's net exposure to market or
Counterparty crt sks (the “exception A fund woud beable
16 determine the far vale of a group of Financial assets and
Babies on the basis ofthe xi pico that would be rc to
se a OL long (asset postion oto ansto a net shot (abit
position, provided that it does al of ho toi:

1. The group of financial assets and abil is managed on
‘the basis of ts not exposure to a particular market risk

Rothstein Kass 9

11. (or isks or the credit isk ofa particular counterparty. in
accordance wth the fund's documented risk management
úrinvestment strategy. Market isks applicable unde this
exception woud include interest at sk, currency sk and
‘thor sks relate t price vat suchas tho price risk of
equites or commodities.

2. Information on the financial instruments is provided to
managemont ona group bass

3. The nancial assets and Habs are measured a fae value
atthe end ofeach reporting pero,

‘To result ofthe exception is to reduce asymmetry inthe
ring of asset and lablity postions within a portfolio Yor
ample boxe postions) with imiar sk charactors on
stand-alone basis by pormiting valuations win a poroto
tobe base on ts net exposure to markt andor cre ik.

Market risks that ar boing offset must bo substantially the
Same nord or ho entity to use the option. For example
«funds not permitted to combine exposures attributed
to intrest ato sk wth those of commodity price ak for
determining far value for financial reporting purposes.
Aétional, the duration ofthe fund's exposure to a particular
should be substantially the same. For example, a und
may measure on a no bass the exposure ofa thrve:month
futures contract against a substantially simiar three-month
future contact, but not against a 12-month futures contract.
Vinon using the exception, funds should uso the pric within
the back spread thats most representative of far value for
‘the net exposure 1 tho market risks asa practical expect,
they may use the mid-price).

respect to appying te exception for counterparty credit
tisk ASC 820 provides tha, in transactions whore market
participants incorporate arrangements to mitgate such risk
during a crt von, the und may include th fect ofits
‘net exposure to cre skin measuring the far value ofthe
lad rancia! ass andor financia! bits, Evidanco of
an arrangement hat mtigate ero rik exposures may bo

ústablstod through ho prosonce of abiding master nating
agreement supported by ital andlor variation collateral
posting, Master nating arrangemants make it posse to net
‘multiple postions with a particular counterparty and enable
‘the roporing ety to assess credit sk more cat on a nat
‘amount rather than ona gross value Individual assets ana
abit. To exception may facta the determination of any
appropiate adustments of valu.

orto manager in tho atratio imesimont industry may
‘eequonty meet he requirements forthe exception dueto tho
‘common industry practen of icing sk rough ho use

ol fisting positions and binding master nating agreement
(Once adopted, he excopton must be applied consistent
rom period to period. The application of he exception ony
Impacts tof valve measurement of the Mania asets and
fables, and does not change the guidance on the “ight

of tis hat apps to financial tatoment presentation,
‘ortho tra for ischosing invostmont on the condensed
schedule of investments (SON). A fund that lets to app à
ask agustment 1 a group of assets and lables under
the exception, for instance, may sl be required to present far
val information on the individual instruments in the porto
on gross basis ints statement o nancial condition and in
he SOL. Tho action to adopt ho exception must bo csclosed
Inthe funds Mandl statements.

‘Counterparty Risk Within Fair Value Measurement

‘Tho impact of nonperformance risk is viewed by market
participants as an essential component of a far value
measurement. Nonperlomanco risk presents to sks that
part to transaction wi nat perform under ts obligation.
(General an ont rod sk roprosents the most significant
component of nonperlomance ak; however other risks such
as regulatory and other operational considerations may
Influence overall nonperformance isk as wel

10 Rothstein Kass

12. Rothstein Kass

As part ofthe valuation process, funds should consider
the impact of nonperformance risk with respect to thee
counterparties to securities and dervatve transactions. For
asset hold with a Mancia nsiuion counterparty, the creat
isk of th counterparty shouldbe considered as part o tho
assumptions of what a market parteipant would pay fe the
‘see positon. For laity postions wih counterpary a fund
‘ould consider its own era sk as part ofthe valuation
ots tabity postion. General, aional consideration of
onperormance sk wi ot be necessary for exchange-
traded soeurs (unless incase o an adverse cred event,
such as bankruptcy proceeding) since quoted prices wil
Include the effects of market participant assumptions on cred
"ek. In addition, exchange traded dorivaiwes such as futuros
contracts and certain option contracts, ar gonoraly subject
to market protections, such as day margin postings and
gusrantes from the exchange clearinghouse, which mitigate
tho impact of nonpertormance rik ouside o tho risk rolocted
wii to quoted pics. Thorotoro the a value process
focexchange-raded derivatives is general not expected

to vote significan nonportormanco sk adjustments. We
‘expect thatthe consideration of counterparty ek wil be more
signant fr valuations of quid socurtios and ratios
transacted oerthe-counter wi nancial institutions.

When a und ras on vation inputs ater than quoted
tices forthe valuation liquid secure, the fund should
consider no uso of observable cre data that would be
relevant fom a market participant standpoint. The eect of
signant nonpertormance ik on th valuation of liquid
secures can nfuence the determination of inputs such as
Projected cash flows and valuation discounts to reflect market
participant assumptions.

For overthe-counter detvatves, th evaluation of funds
counterparty cod risk exposures should nuda consideration
cof master noting arrangement (2, standardized intemational
‘Swaps and Dorwatves Association agrooments), colateral
balances, contract settlement provisions, and he atbutes

‘ofthe front dervat contact types. To the oxtont an
‘enforceable master netting arrangement exists, a fund may
‘need to incorporate valuation adustments atthe portolo-ewl
1 consider th ects of nonpertoemance sk on the valuation
ol doñvaives held witha particular counterparty Funds should
Carouly review any master nating arrangements to determino.
‘wether the arrangements perm the neting to apply between
item product types.

Funds should monitor ie red ek ofthe nancial nstutons
they transact wih at each reporting period. Publicly aalable
Information suchas pubishod credit ratings, cost spreads,
‘ret default swap rates, and SEO flings may be uzed.
Funds shoud consider th responsiveness of avaiabi cod
tisk intermation o changes in markt condtions as par of
their monitoring process, as certain data such as dfau rates
‘may not provide timely information relating toa couter
eurent status of nonpertormance risk

Application of Premiums and Discounts in Fair
Value Measurement.

{Under ASC 820, a fair value measurement should incorpora
premius or discount I market participants would take them
into account in a transaction of th asset or Habit, The
premium or discount should re he characteristics ofthe
sat or laity being priced rom the perspective of a market
Partant rather than those specie to the reporting et}
For nstanco, an liquid comerte bond with an ou-ottho
‘money conversion feature may be valued using a discount

A participants trading in this market would consider such a
acount in ti determination off valu.

‘ASC 820 alows fr the application of conto promiuns
‘and nen-contoling interest discount when a market
participan would consdor such premiums and discounts
‘appropiate tothe unt of account. Control premiums may
Do utilized, for example, wher instruments have embedded
{6atures such as voting interests, oto valo investments

Rothstein Kass 11

13. in private operating companies where markt participants
‘would consider such premiums in determining fair value
{forthe acquistion ofa controling stake fr instance, or
‘wansactions in a merger and acquisiion market,

‘Based onthe same principes, ASC 820 prohibe use of
blockage factors in fa value measurement. A Hockage factor
{sa discount applied in measuring the value ofa security to
ellct ne impact ons vale of sling a args block ofthe
‘secur atone me, which may cause large variations in
‘rice. Blockage factors relat tothe siz ofthe transaction,
which ie factor speci tothe reporting entity, and do not
‘efloct a characters ofthe individual cry ol rom the
perspective ofa markt participan. Under ASC 820, blockage
{actors ao prohibited talves of tho fl valorar

‘Accounting for Transaction Costs

ASC 820 detinas transaction costs as tha costo sean assat
‘or transfer a fabity inthe princpa (or most advantageous)
marke or to asset o aby that are irc auto to
‘he sposal of the asset ortho transfer of he ability and meat
both ofthe folowing croi:

+ They sul drecty tom and aro ossontial tthe transaction
+ They would not have been incured by the entity had
‘he decison t el the asset or transfer he labilty not

‘boon made.

US. GAAP requires the capitatzation of wansaction costs in
‘he intial cost ofthe asset or bit (Le the entry pice. in
contrast, the a valu of ho asset or ho abil roprosants
‘he pice that would be received forthe asset o pid to
anse tho laity (Le. the et pco. Since tho fair vale
‘ofan Investment does not include costs that are required

to completo a slo transaction, such as commissions or
losing costs in many instances, there wi ina be an
nroatzod os fora socurtythathas capitalized transaction
costs. hrotoro, day ono recognition of gains and losses on

purchases of assts or lait, rotoctng he diference
between the fr vals andthe transaction price, ara permiso
under US. GAAP

Considerations for Level Designations:
Level 1

Typicaly, secu traded on an active markt, such as tho
[NYSE or ather major exchanges wit bo classified as Love!

1, provided that () o markets the principal or most
vantagoous) market an (9) the und has the abit o
access the principal (or most advantageous) market. However,
when a securty is thinly traded and its reported “ar valu is
not representative ofan active markt (or wading is hats,
tho security may need tobe transfor into Level 2 or Lovel
3. As discussed previously inthe section ented Datermining
Fair Value on a Markt Is “octo” and Transactions Aro
Not Order” ASC 820 provides guidance onthe factors

that a fund shoud consider to determine there has been a
‘ignitcant decrease inthe volume or va activity and ita
transactions deemed not oder

funds valuation poley should include a quantitative
{tvoshold te determino what constitutes an activo markt,
wii typically wil be based on average trading volume,
frequency of observable transactions, and evaluation of

the id-ask spread. As a best practice, a fund's accounting
system should generate an excoption report based on

this quantitative theeshold in order to determine whether
Investments should be transterrad out of Level 1. To perform
tis exorcio,a fund should obtain he trading History (0.9.
last 30 days ofeach investment hed at month-end.

Aftermarket Events

‘ASC 820 requires consideration o attarmarket events in ar
valve measurement, Examples of aftermarket events include
atermarket trading, oamings reports and announcements of

12 Rothstein Kass

14. Rothstein Kass

‘sinicant events that occu subsaquent othe los ofthe
last tracing tein the reporting period and that would be
considered by market participants in datermining far value
‘on the measurement date. Atrmarkt events may occu on
an ordinary business day ato tho markt cise, on a non
business day such as a weekend ora holy, or also on a
‘day of market closure due to extraordinary even

Management should review any variances betwoon the st
losing pres and the price subsequent o tn aftermarket
events. Variances over a teshod amount determined by
managment should be inf and the far vale ofthe
investment shouldbe adjusted when variances are deemed
‘mato should also be noted hat any signant acfustmont
due 0 aftermarket events result in a Level 2 or Lol 3
<esignation in ie fal value brary.

Level 2
Liquidity Discounts

Level 2 inputs are input othr than quoted market prices
Included within Level 1 that are observable. Level 2 secures
il typical include restricted stock, private investments

in publi equty PIPES) and certain convertible bonds. The
{air valo of those types of invostmonts is gonorally based
‘upon the price af the actively traded public equity price an
an “asi? converted basis loss discount applied to take
Legal restrictions ito consideration, iquidty sk, price
volt and other ik assumptions. n practice, wo hate
een discounts typically range from 5% 10 0% (wth higher
discounts on a case-by-case basin situations where the
discount significant or whan convortilosecuritis are not
Inne money, these postions wil ypcaly move ino Level.

In applying Katy counts, a und must consider assumptions
used t rive at far value rom the perspective of a markt
partant Consideration ofthe quantity ofthe investment
old by à fund, oF und’ intention to hal an investment is
‘not relevant in estimatin ar valu at tho measurement dato.

Derivatives Valued Using Models

In order for derivatives that are valued using modes (99.
Interest rate swaps) to quali fora Level 2 designation, the
mod uso to measure ti value must:

+ Be wide accepted
+ Be non-propritary
+ Use data thats observable

Goran inputs derived through extrapolation may be
corroborated by babe mark data and stil maintain
Level 2 status (29. extrapolating a five-year interest rat
eld into seven-year ye). However, there ar significant
udoments or acjestments made o other tho model or data,
‘he dervaves may bo considered Level 3. For example, the
exrapalaton of short-term inputs for longer-term inputs may
require adational assumptions or judgmants nat aro not
‘observable, therefore moving the investment to Level 3

Level 3
Private Operating Companies.

Investments in private operating companies, also known as.
private oquiy investments, wil generally bo categories in
‘he fair value hierrchy as a Level 3 investment, given the
Jack of observable market inputs Many funds that invest in
private oquiy companies have traditional recorded the fae
‘ale of those vestments at thor transaction cost and
subsequenty made adustments when ther was a nou round
‘of feancing tis relevant to not that tn nil transaction
costs nat fa valu, but ar alo can approximate tho ial
transaction cost. A fund valuation policy should document tho
{al valve o private equity investments trough is use o tena
analysis, review of porto company rancia statements, and
comparison tn ar vale of publ Secures tothe fair value
ofits ivestmentin the private equity

Rothstein Kass 13

15. hen considering whether th transaction price rom a new
round of nancing sa suitable Input in fl vluo measurement,
‘hollowing factors shouldbe Lak to account, among ter:

+ Aatibutes and characteristics ofthe transaction

+ Complex othe capital structure

+ Proximity to reporting dato

+ Extont of participation of ational hied-patyivestors
{tho round of tnancing

+ Any changes in the portal company in th intrvening
period between transaction dat and reporing date

Again, ho nial transaction cost canbe considered (but ne
‘on ts. own) since it cannot be presume t be ar valo. As a
best practic, fund’ fancial reporting team should document
‘the fr valve measurement ofits private equity investments

y performing an ongoing review of the approaches used to
<otorine fir alu. For example, a und shoul incorporate
‘muttple valuation techniques to determine the fair value of

its investmentsin prvato equity, such as a discounted cash
low analysis a wel asa market based approach hat includes
Infomation of comparable pubic companies. A market based
analysis shou alo inode comparisons of pbc company
perfomance multiples a part fits supporing documentation
offar vals, Furthermore, a private equi fund shou include
‘the use of mute valuation tachniques to supplement and
coreborate 1 tr vato basada o tansactin pico na
recent round of private equty financing

Private Investment Companies

[ASC 820 provides specialized guidance fo funds that have
Investments in private investment companies (also hereto
toledo as “esto und" valued using tho nt asset valve
per share FNAVT) or ts equvant Tis guidance in ASC 820
apple the investment in an invest fund moots both ofthe
following ertoria atthe measurement dato

+ Tholnvosiment does not have aradly determinable fale
vale (ie. active market quotations are available for the
Investment then the quoted prices shoud be used
‘The investment has al of the atrbutes ofan investment
company as pain tho FASS ASC Topic 46, Financial
‘Senices- Investment Companies, (ASC 9467 orhlacks
‘one ormore of mo space atras, is industry pacto
ose financia statement using guidance has consistent
ie accounting principles of ASC 84.

‘ASC 820 provides that a fund may uso NAV as a practical
‘expedient when determining the far vale oft interest in

an investoo ey unes ts probable the imestmants wil

6 sol at a price otha than NAV. Furthermore, fund is
Permäted to estimate the far value of certain investe anios
using NAV without furor adjustment NAV is calculated
content withthe guidance in ASC 846 as ofthe fund's
measurement dae. tis important o noto that while funds

il benefi because of the reduced Eme and tor required
to uso the practical expodiont, management must st take
sponsibliy forthe fa value measurement ofits investments
in private investment companies.

A common question that ofen raised is whethor a fund is
required t “look tough’ othe underying investes funds
investments o determine fa val, In cases where a fundinvests
in an investo fund that invests in other undying vestments,
‘he fund isnot required to “ok through” otha vastes funds
investments as ong asa fund evaluates the ofectveness of
ech ofisinvestes funds" processes oer intemal conto and
‘ofthe valuation pracicas ofthe mosto ads able to conclude
‘hat the reported NAV ls calcuatodina manner constr wth
ASC 946, However, befor concluding that Be reported NAVs
seuatdin accordance with no measurement principe of
ASC 946, te und shoud consider tho following:

+ Evidence gard during the intial due gence and

‘ongoing monitoring procedures ofthe ivestoe fund
+ Tholnvostes und ar value estimation processes and

14 Rothstein Kass

16. Rothstein Kass

control envionment, as well

I pollas and procedures

for estimating far value of underving investments, and

any changes to those processes, the contro environment,

or polis or procedures.

‘The uso of independent the party valuation expors.

‘The potion ofthe underhing secures held by te Invest.

fund that are actwoy traded (0. Levelt sacutie.

+ Comparison of historical rations o Last reporte fale
vato (0, back-tosting of secure),

Water NAV has been appropriately acted fr ems.

such as cared interest and claw backs

‘Te professional reputation and standing ofthe invests

‘und’ smn prods such sits autor and admit

Qualifications, any, ofthe autors report or whether

there ls history of significant adjustments tothe NAV

reported by th invostoo fund manager as a eau of ts

annual aut oroteruise,

‘Te basis of accounting of the invest und (Le. US.

GAAP. IFRS, income tox bass, cash basis, et)

Moreover, when determining whether the investment wil be
categorized as Level 2 or Level 3 within he far value bierarchy,
fund must consider te length of me remaining unt the
investment becomes redoemable. tong asthe fund has the
contractual and practical aby to redeem atthe NAV in he
near term atthe measurement dai, then an investment may
be classified as Lov2, event a redemption notice was not
submited. "Near tem is a matter of professional judgment
and historically has boon dtined by the FASE as a period

of tne not to oxceed one year rom the measurement dato.
However, a redemption period of 90 days or nes would Hey
be considered naar term since any potential discount relato
10 tote valo of money to tho noxtrodomption date would
not oi be considered a significant unobservabe input is
Important t note that a redemption prod of 90 days or less
should not automaticaly be deemed near term. Other facts
and circumstances, such asthe tkalnoed or actual imposition
of gates, and the Equity of to invosto und porta,
should aso be considered bythe fund in determining the

appropriate ove within he hierarchy. In situations when there
19 material agustments to NAV to ave at far valu the rast
il typicay be a Level designation.

For nds that are ether precluded rom ar elect not to use
[NAV as a practical expediont to estimate ar vale, such
as whon a sale ofan investment is probable at an amount
iferent from NAV, or an adjustment tothe reported NAV
‘cannot be estimated, the spoci atributos ofthe investment
‘that independent markt participants would take no account
In vag th investment must bo considered. The features,
risks and other restrictions elated t each investment should
o ovauatedin he aggregate since those attributes may be
considare bya market participant with accesso the market
forthe investment when determining a price forthe investment

‘The abit of aninvestos fund to provide avi tote
Investors through subscriptions and redemptions ao key
‘considerations in evaluating whether an adjustment to NAV
‘woud be required For example th neste funds an open-
‘ended fund which pais investors peodicalytransactin
and out ftheimestment, make partispants may accopt NAV
as fr vale sine itis aly they would aso transact a the same
reported NAV. Te use of redemption gates and side pockets ro
common techniques used 1 manage the qui a fund in
anordery mannr. The mere existence af contractual provisions
perting the uso of gates ana ide pockets might not normaly
ave an effect on fava unless those provisions ae actual
‘cod. These considerations ar kay to o evaluated tho
opor nd as par ofits ni ue llgence procedures when
‘making animestmonti aparcar und. Trace features ao
general considered and accepted by market partcpants, and
‘may nt rest in ary adjustment o NAV. However, finds shoud
‘ti consider hase feats in Couch th oar inputs
avoit vale the imestment.

In summary i market participants would be expected to
Place a discount or premium on the reported NAV because
rk, feature o other factors relating tothe investment,

Rothstein Kass 15

17. thon the fa value measurement of tho imostmont would
need to be acute for that risk or opportunity, However, it
‘market participant might accept the same risks, features or
ther factors relating t the investment and might transact at
the ported NAV without an adora premium or iscount,
those facts may suggest hat no adjustments needed to
ostinato tr valu.

Disclosures

Disclosure of Level Designation for each “Class”
of Assets and Liabilities

ASC 820 requires a und o provide ar valve measurement
hacloures foreach “lass” of assets and lts While ASC
820 doos not special outine the cria to define a dass
of assets and tabiltios, it does provide guidance as to what
the components of ho class should ental based onthe nature
and ak ofthe asset and ates.

For guy and debt secures, a una should determine no
appropriate classes for those disclosures onthe basis of

the nature and leks ofthe assets and kabities and their
claseication in the far value hierarchy (Levels, 2, and

3) ASC 820 alto requires that casses for oquty and debt
secures be determined using major security types. When
Preparing the ar valve measurement disclosure foreach
class of assets andlablties, we recommend that funds use
asa stating point tho same secur types for classes that
are used nthe SOL However, a fund manager may consider
saparating a particular secur typo Int greater dal based
on factors such as business sector, vintage, geographic
concentration, credit quality and economic characteristics.
Foral othe assets and alt, judgments needed to
Gotormine the appropriate classes of assots and bites for
hich dloauros about air vale measurements should be
provided. Depencing on th nature and extent o he entity's
holdings, a greater dtad and number of lasses may be
more pertinent for investments classified as Love 3 duo to

the grater dagre of uncertainty and subject inv in
etermining Level ar value measurements.

In many casos, tho operating industry of asecunty wil be a
moaningul class designation 1 provide csaggrogation in fair
value disclosures. Other meaningtul class designations may
Include markt capitalization, geographic concentration,
eset class tranches, investment rates, commodity typ,
lervative undeñying, and erect rating categories, based on
tho sk concentration hat a und dotermins 1 be signticant
and elvant to investment strategies. In detemining

the appropriate level of disaggregation, a fund should iso
consider disclosure in ther US. GAAP Hterature such a

ASC Topic 815, Dervatos and Hedging. Mo methodology
sed to determine classes under US. GAAP may vay across
tie, but should rutin increased wansparency 10 tho
users o the financial statement.

men propaing the required disagoregation isciosures
under US, GAAP, und managers shoud evaluate whether

the combination ofthe SOI disclosure requirements and the
ASC 820 dleaggregation ceciosure requirements wil provide
sultelent transparency ofthe fa value erarchy dassileaions
to users of the financial statement. Moreover, funds that
close air investments by major security type on the
SO should pay special attention to certain investments th
“cross-over into various Ivo within the fa value horarehy
Ris important t note that when investments shown on the
SO contain material amounts of evel 2 and vel 3 positions,
‘fund manager should consider bfucatng the amount of

the imestment into significant concentrations (10. industry,
geographic are, or vintage) in the treo love hierarchy footnote
sclosure table. As a practical mata, the SOL and the oainot
(score showing asset ad Habits by class should bo
prepared smutancoush.

Please reterto Exhibit 3 and Exhibit 4 for examples of sample
financial statement footnote disiosurs.

16 Rothstein Kass

18. Rothstein Kass

Disclosure of Activity in Level 3 Fair Value
Measurement

Under ASC 820-10 fund s required to csclose a rolfonvard
tablo for wo invostmonts class as Lava! in the far valve
earchy that reconcles the begining and ending balances
and indicates foreach lass of asots and labios: ) no
gains aná losses forthe period ona gros or nat basis and)
purchases, sles, issuances, sotlmonts and transfers in and!
or ut of Level Son a gross basis.

“Tho guidance also requires tho fund to disco the reasons
foctransers n andor out of Level investments, Management
should dscioso and consitony flow ts poe for determining
when transtrs between leves are recognized. Examples of
policies for when to recogrizatrnster in and out of Level 3
Inthe fal valo ierrchy coud include the folowing:

+ Tos begining ofthe reporting period
+The ond ofthe reporting poros

Derivative assets and lables can be presented inthe
rolforward table othr before ross" or after na’) the
application of any right of oft

Depending upon he amount ofa funds Level 3 actly ing
a Period, the SOI may not provide enough meaningful
saggregation deal t identity appropiate classes ol assots
and ates fr sei ho Level 3 ollorwar, since the SOI
represents a snapshot of a fund's vestments ands not
anactvty-basod dsclosure. Therefore, and may need to
consider he magnitude of olforward activity for a gen class
10 determine whether it masts mere granular detal in the Love
roman.

Pose refer to Exhibit 3 an Exhibit fr examples ol sample
financial statement footnote iciosure.

Disclosures About Inputs and Valuation
Techniques

{Under ASC 820, or ar valve measurements sing significant
‘ner observable inputs (Level 2 and significant unobservable
inputs (Level) a funds requires to disclose a description of
tho valuation techniques and inputs used in doermiing the

fa alas ofeach clas of asset anglabatos Funde should
iso disclose ay significant changes in valuation techniques

and he reason for making he change,

In alten, funds are requird 10 aisclose quantitative
Information about te significant unobservable inputs
used in har Level 3 investments in tabular format. Such
requirement might be satistiod with a able that includes,
for each investment class, the aggregate fir values by
‘valuation technique used, and, for each technique, a isting
of the significant unobservable inputs, the rango of inputs
used and a weighted-avarage ofthe inputs, Funds are not
required to disclose unobservable inputs which are not
developed by the fund whan determining ar valo.

Examples of unobservable inputs that are typically developed
y management and would be required tobe disclosed are:

+ Adjsted valuation mulipls (revenue or EBITDA)
+ Discounts fr ack of marketabity

+ Loss severos

+ Prepayment speeds

+ Recovery rates

+ Corolaions

+ Control promiums and noncontoting discount
+ Time tooxpiy

+ Historical vola

+ Cost capital

+ Grow ratos.

In sors casa, a fund may us inputs act pr tansactons,
such sth pic rom te ltstroundoffrancing fora private

Rothstein Kass 17

19. ol investment, or pices that ao obtained tom independent
thi partes, such as indicate broker quotes or corporate
‘bond othe net assat valve for an mvestment ina private
Investment company, as igiicant input in Loe! fava
measurement. othe ext hat such external deve inputs
aro unadjusted, they ar not required to be dsclosed. However,
any agustmens to extemal deived input, such as the
application of a ui discount, aro deared tobe inomaly
{veloped bythe fund, and, significant to the fa value
‘measurement, they ar subject to the dsclosure requirement.

no ASC 820 requires valuation methodologies and
corresponding quantitative inputs tobe disclosed a evel,

‘of udgmentis required in how the csclosuro is present.
Funds shoud consider furor dsaggrogaing ose class

Ct investments by, o instance, business sector, stage in

te yet of iwostmont, or ext strategy for private equty
investment, Funds may use the SOI sa starting point for
isaggrogaion, and modiy as appropriate. Tho disclosure of
Inputs should tal within a meaningful rango. In order to ave
at such range, oro should be a reasonable balance inthe
amount of data aggregation performed,

As abos practice, funds shoud vw th iecsues for Low!
2 and Laval 3 investment to ansuo that arbust description of
‘he valuation inputs and methedciogls used are ncled in me
financial statements. Management should ensure that he tabular
icosures of quantitate inputs rocks an appropri evt!
‘transparency and disaggrogation o enable financial statement
users to compare thor views o managements assumptions,
and to compare changes in assumptions and range of inputs
used overtime thir part rios ae used, management

should ensure that hey have performed appropriate due

diigenco regarding to vain and uso dp ricas.

‘Pease roer othe section on Management's Responsibility
fer Valuation Inputs Developed by Third Parties or urthor
guidance.

Please oler to Exhibit 3 and Exhibit 4 or examples of sample
"financial statement footnote disclosures.

Disclosures About Valuation Processes

‘ASC 820 requires the disclosure af the valuation processes.
‘sed for fair value measurements categorized within Level 3 ot
‘tho fr valu hierarhy. For instance, a fund may seien to
{allowing to comply with ASC 820:

+ Adoserption of he group within the fun that decides the
func’ valuation policies and procedures, to whom the
group report and the internal reporting procedures in
place lo example, how valuation, ick management
or audit commitoos discuss and ass0ss tho fae valve
measurement.

+The frequency and methods fr catbration, back esting,
and hor testing procedures on pricing modos

+ Tho process for aran rangos nar valo maasuremonts
‘tom period to period

+ How th und detominos thatthe party information, such
28 broker quotes or pricing services used in the fae value
‘measurement was developed in accordance with ASC 820.

+ The methods used to develop and substantiate tho
unobsanabie inputs used a fair valve moasuromont

‘The purpose of his closure to provide fnancal statement
users with more transparency over the processes adopted

y a und management to mitgate the subjectivity and bias
inherent to Love 3 investments. Since Hmited, l any, market
derived inputs may be avaabe for such valuation, significant
Judgment is nocassan in the valuation process. in ado,
‘whl the pontolo manager responsible forthe investment
‘may have extensivo knowledge of the assumptions underying
‘the valuation, there are potential cones of interes no
portal managers soll responsibo fr the valuation,

Management should use this opportunity o evaluat tho
design ofthe vawaten policies o comply with tho greater.

18 Rothstein Kass

20. Rothstein Kass

transparoney requirements ofthe new eiclosures. The
requirement to dicioss the valuation process brings
hoightonedattontion tothe process and shouldbe addressed
accordingly. The new disclosure is subject to being part of
the due digence performed by sophisticated investors, and
the adoption o Industry accepted valuation processes can
representa competitive advantage over fonds which
pereoived to bo deficit in hor valuation process,

In accion, funds should bo dligont in ensuring that the
disclosure ofthe aspects of their valuation polie ls
consistant wth tnioa-io practices, Inconsistencis in tho
‘valuation processes represented by no fund as compared to
the moral documentation o te fund's operations can bo
damaging 1 a und fits construed to bo a misloasing act a
the course of regulatory investigation or investor tigation. A
generic approach to this disclosure isnot adequate to provide
moaningful and reliable information to financial statement users.
Iti important to note thatthe iscosuro 1 funds valuation
processes needs to be alore 1 provide a fa ropesentation
of tho actual procedures performed as part ofthe day o

(day operations ofthe fund and consistent wit the intra
documenta ofthe funds operations. A generic approach

to his dsclosur is not adaquate o provide meaning and
robe formation tothe financial tatoments users

Please refer to Exhibit2for an example of financial statements
footnote ásciosures.

‘Additional Disclosures for Investments in Private.
Investment Companies.

{Under ASC 820, a fund should provide addtional disclosures
focitsinvostments in private invest companies regardes
of water ho fund uses NAV as a practical expedient. The
Sscoaures a intended so uses of nancial statements can
understand the nate and ks ofthe investments. The folowing
(deciosuros must be made by each major category of imostmont
fori and anual reporting pañods:

Fai valuo and a description ofthe significant strategies

otimestesta,

Forimestmens hat cannot be redeemed, hs estimated

tie that it wa ake the vest) o quite the

undñyng assets.

+ Unfunded commitments to veste,

+ Redemption or qui terms such as notice parods and
redemption times (4. 60-day natic pario with monty
query}

+ Temporary restiions on redemptions trom otherwise
redeemable imeste(s including how long the restriction
has boe in efect and an estimate ofthe time the restriction
wilapse or the statement ofthe fact when the entity is
bi to maño an estimate, Examples of estricions would
be lockups, gates and suspended redemptions.

+ Any othe significant restrictions onthe ability o sr
redoom an investment.

+ The fair value of any portion ofan investment that is
aly to be sold at an amount othr than the roportad NAV,
and any remaining steps required to complete the sale
cc rodomption.

+ Any plans o intentions to sel group of unspecified
investments that continue 1 quay tr th practical

expedient and the remaining steps required to complete

úAdkáional disclosures shoud be made to explain the overall
‘sks and exposures o economic concentrations ofthe vestes
funds by goographi regions, industries and types of secures,
In dotermining the appropriate major categories of investments
in rate investment companies, a und should consider the
activity or business sector, vintage, geographic concontaton,
credit qualty and other economic characteristics ofthe
invest funds.

Paso rotor to Exhibit for an example of sample financial
statement footnote daciosures.

Rothstein Kass 19

21. Additional Disclosures for Public Entities

In addition tothe isclosures required fom all entities
and ciscussed In ho preceding paragraphs, ASU 2011-04
has introduced the folowing disclosure requirements for
public entities:

+ Disclosure of al transfers between Level and Level 201
the far vale hierarchy.

+ Forinvesmentsclasiiodas Lovet inthe fa value hierarchy
a narrative desciption of tho sonst of rcuring fair
value measurement to changesin the unobservable inputs
leclose. hee ar intrelatonships between those
Inputs and other unobservable inputs used inthe tr valve
‘measurement. a fund sal ls provide a description of
‘those ntrolaionsips and of how they might magaly or
‘magna the afecto changes inthe unobservable inputs
‘on tho fa value measurement

‘ease roer o Exhibit 6 for exams of sampiofnancat
statement footnote dsciosures. Please noto that such
sclosures are not required for private fonds

Best Practices for Fair Value
Measurement and Disclosures

‘The amount of ime and resources required to implement
‘and remain eurent wit he fair valve measurement and
lsclosure requirements contained in ASC 820 shouts not
be underestimated. Whether thee is a need to implement
the ar vale guidance in ASC 620 or the fst timo, o comely
with updates to existing far value measurement and
‘disclosure guidance, management needs toestabssh an
ttctve protocol determining air value. To that end, we
command management create a nancial reporting tar,
nen implementing tho guidance of ASC 820, the Financia
reporting team shou frst understand (1) how to measure

fair sale based on a fund's port, and the content

and format ofthe required financial statement disclosures.
‘Also, we recommend management assign a "Champion" to
the implementation process who wit lei aise betuoon
the iestment management tam, valuation committee. and
‘other intemal accountng and technology staf. Furthermore,
once the nancal reporting tam is established, the

should reach ott thor autor and fund admisrator to
gai an understanding of how those outside pares could add
‘vale to ho process. By inching cortan uti thr partes
throughout he a valve maasuremort and disclosure process,
fund can avoid unwanted surprises during the year-end
financial poring process. Asa best practice, a und should
perform a sot iso as ofan interim dat, which woud include
‘he preparation ofa fotnot disclosures required by ASC 820.

Inaction proving aramaworkin cating howto aie
at far value, ASO 820 also provides greater transparency to
Investors roaring (a he types ot invostmant tunas mosto
In.) the methods used value those vestments, (ak
exposures underyng those investments, () movements
between fa value hierarchy levels, and (@ the portion of

fund partormance derived rom Level 3 secures. Uma},
tho roquted fr vale ociosas wal become aoa that und
Investors can uso to vahato a fun pario.

Compliance withthe ar value measurement and disclosure
guidance in ASC 820 shoul incudo:

+ Documenting pole and procedures to comply with
‘ASC 820, including monitoring active vs. inactive markets,
altermarket evens and relay of markt data

+ Addressing system requirements or data aggregation.

+ Evaluating tolva dsignatons wit ho fa vale
erarchy on at east a quarter bass,

+ Portering a sot close aso an intr dato ncluain the
preparation o al ofthe required {nana tocino
schodules and disclosures prior to the yoar-ond close

+ Coordination wi nic party sonic provider administrators,
(OPA ems, ping services and pre broker)

20 Rothstein Kass

22. Rothstein Kass

Management's Valuation Policies and Procedures

Management wi need to have a process in place to allow it
te gather the necessary information to comply with he fie
valve measurement and diciouro standards. T that ond
management should continually monitor a und front and
back office accounting systems used to track and produce
‘valuation data. is wil alow a fund to make informed
decisions on valuation techniques and the assignment of
level designations fr th vestments within a fund's porto
(tagging of imostments”.

In cur discussions wih fund managers and administrators,
‘the tagging of investments is performed either on a monthly,
‘quarter, or annual basis. The best practice's to tag secures
ata minimum on a quarte basis. resources permit, we
recommend tagging securties on a monthly basis. Lovel
designations can change as cictated by coninualy evolving
‘market conditions. fund's accounting system should have
‘the necessary data lds 10 alow to tag each security

and enable the fund to generate reports showing the eve
designations by secu.

is important 1 note that if a fund engage an administrator
{or th proparaion ofits tnancil statements, management
‘should understand the processes and data used bythe
Adminstrator to prepare the required far valve disclosures.
‘The “owner” ofthe implomentaton process should manage
the coordination withthe administrator wo before the yaar-
end cose

Management and audtors alke wil ned torevew a fund's
‘valuation policies and procedures ona parc bass In
‘General, these poes should addres te folowing:

+ Methodology on evel designation
Dafntion of an active mara
+ Tholov average trading volume and foquoncy that

‘wil deem an investment.

thinly traded (Le, inactive,

which may equi a Laval 2 or Lovl 3 designation

+ Determination ofthe principal andor most advantageous
market

+ Kgenticalon of atermarket events and thelr impact on
taras

+ Ouanttatwo and qualtatvo documentation on tr valuation
Inputs and techniques used, including how no fal value
mossurement of assots and labios int tho fa valve
rary

+ Description of valuation process fr investments valued
‘using Level? and Level 3 and how signifiant Level inputs
ar identified and developed by clas o investments and
valuation methodology used

+ Evaluating ho ettect of investment restrictions

+ Ideniiation ofthe assumptions reichen
‘unobservable inputs

+ Idofiaton of tho report that wt provide tho required
data to prepare the year-ond Inandal statement dsciosues,
Including reconciliations of those port othe books and
record of the tn

+ Back sing ofa great Lovel2 and Love investments
‘by comparing the investments transaction price inthe
subsequent period (ealized proceeds frm the sale ofan
asset or disbursements made to seta lability) against
‘the far values of those investments reported inthe most
rt Ena roporting pario

+ Criteria for transe of investments between levels ofthe
{ai va rares

+ Due digence procedures on valuation inputs developed
by tica partos

Rothstein Kass 21

23. Management's Responsibility for Valuation Inputs
Developed by Third Parties

Understanding the nature and content ofthe services provided
by tid party pricing servicos regarding valuation information
is management responsibilty. As such, and alo in ght of
hoightned attention on valuation practices rom the SEC and
Other eguitory agencies, managements wel served to ask
itso he flowing questions when using third party series
for vauaion

+ Do have sullontinfoemation about the valves provided
by pricing services to know that were complying with
us. gasp?

Have wo adequatay considered the judgments that have
‘been made by third parties in order o be convortable
with our responsbilty fr the reasonableness of such
Idgmonts?

Do wo have sulficlnt understanding o! he sources of
Information andthe processes used to develop tt identity
sks reliable nancial reporting?

Have wo igor documentos, and tested controls to
adequately address tho risks to ola financial reporting?

Management should understand the methods usad by third
patty service providers and determine whether the pricing
data is transactional or model-based, I pricing data ie
‘model-based, management should understand the significant
Inputs used and how they aro impacted by changing markt
conditions. a pricing service ony provides a price for a gen
CUSIP with no information about the models or asaumptions
sect price it, management may nt have enough information
to assess the appropriateness ofthat pric to determine
hater itis in conformity with U.S. GAAP. Further, caveats or
(&sclmers that the pricing service includes wit its pricing
information may affct the proceduras management performs.
to evaluate that information.

‘Tho love of duo digonc renier of hed party pricing sonic
and quotes received from broker-dealers will depend on facts
and creumstances such as

+ Type and complexity ofthe investment

+ gut of the markt and access to actual wansactons
‘and other observable inputs

+ Nature and complxi of pricing mathodoiogios and
‘assumptions

+ Historical accuracy

+ Background and expertise of servico provider Ivan
‘the francia product

Bus practicos should include an ongoing monitoring recess to
very ie ably ofthe pricing methodologies, assumptions
and sources use,

‘Management best practices t ull ts rosponsitistos on tho

{use of tir part information in fev measurement may
Include some oral of the following:

+ Obtain an drid fa tie pty oral memo
and security spect methodology and ensure that itis in
only with the fund's goveming documents and with
current US. GAAP. Management should review no latest
SSAE 16 1 (formerly SAS 70) report, as wel as ational
avalble documentation, to gain comfort with the controls,
‘and processes on fa valuo measurement in place a the
‘service provider organization
Perform periodo “deep dives" to test the valuation of
indhidual instruments bythe service provider. Management
‘should obtain Io supporting documentation forthe
‘valuation ofthe sampled tems, including bid-ask quotes,
ok curvo datapoints, veais used the far valve
measurement and has sources.
‘Build and execute a robust challenge protocol which
Includes setting acceptable level of variance by buckets
‘of sacurty type, partom a poro comparison batroon
‘valuations goneratod intemaly and thogo provided by

22 Rothstein Kass

24. Rothstein Kass

the pricing services, and olow up procedures incase of
Perform back testing o pricing service valuations by
comparing prices onthe measurement date to subsequent
prices. Back testing of pricing services valuatons and
broker-dealer quotations should be part of he ongoing
‘monitoring procedures
Compare pices provided by atematvo service providers.
+ Obtain support forthe clasica of vestments inthe
applicable ove ofthe ar value hicarchy and evaluate
whether such classification is a compliance with US.
GAAP guidance and with he fund’ valuation poy.

Amon broker quotes ar sd, management shoud aso
consider no folowing best practices:

+ Obtain sulicion information onthe quotes to estable
whethor the quotes representa binding commitment
to buy and sol at that price, or are non-binding, and
lor whether the quote ell transactions that actually
‘cuted inthe markt or ar indicative and moel-
based. For indicative quotes that are developed using
a model-based tochique, evaluate the extent to which
unobservable inputs have bean used.

+ Document any price adjustment apples t Io broker
{quctes received andthe justicaton for such adjustment.

+ Document any price overide andthe justification for
such overdo.

+ Document he valuation methodology and inputs used to
{establish an alternative fair value measurement when there
is a reasonable basis to belle thatthe quoted broke.
eater price dows not accurately fc the fai value of
porta socuft fo instance, nthe cas o quid
marks, tao quotes, or wansactons under duos)

For valuations tht are provided by specialist (ypial for
investments classified within Love 3, such as investments
in private equity and debt securities, o in realestate),
management should ovalvate Mo specialist's credentials

and roviow the valuation report to dotormine whether tho
appropriate valuation inputs have been used and valuation
technique(s) applied. Management should determine whether
the inputs used in the valuation are consistent with
‘management’ own understanding ofthe characteristics
ofthe investment, and whether the valuation technique
and inputs used are consistent with what ls state inthe
speciais'sroport. Its recommended that management
independent verifies a sample ofthe significant inputs

in tho valuation for instance, a sample o datapoints for
pubic comparable companies as stated inthe specialist's
repor. Any significant citfrences should be addresse
withthe valuation specialist and ne reason forthe
ittorence investigated

Other Considerations
Differences Between U.S. GAAP and IFRS.

The amendments in his update aro th result ofthe work of
the FASB and te IASB to develop common requirements
for measuring fal value and fo isiosing information about
far valve moasuroments. While the FASB and tho IASB.
have created a unto framework for measuring fair vals,
<iferonces romain beton US. GAAP and FRS. These
include, among ter:

+ IFRS requires a quantitative sensitivity analysis or
financial instruments eatogonizod within Lowe! 3 of tho
far value Hierarchy.

“IFRS does not provide fr tho use ofa practical expect
for measuring Colin investments in private investment
companis that porta net asset valve as a measure of

+ IFRS requires that a urement ba based
on observable inputs when recognizing day-on0 gains
and losses.

Rothstein Kass 23

25. ‘Source of Fair Value Measurement
and Disclosure Guidance

‘Since th launch ofthe Codification on July 1, 2009, ASC
820 has become th solo soure for authoritative guidanco
on how emites measure and disclose fae value in thee
financial statements under US. GAAP. When amendments
to the Coctication contained in an ASU become eo
‘the Godifcation guidance is updated. The folowing ASUS
concerning far value measurement wore issued by the FASB.
subsequent to the launch ofthe Codiicaton:

+ ASU 2011-04, Far Value Measurement (Topic 820)
Amondments o Achieve Common al Vale Measuromont
and Disclosure Requirements in US. GAAP and IFRSs
(issued May 2011; fective for annual periods begining
December 15, 201 fr private enti, and fr ntrim
‘and anual periods beginning December 15, 2011 for
poble ones

‘ASU 2010-06, Improving Disclosures About Far Valve
‘Measurement (ssued January 2010, efectivo fr interim
and annul reporting periods beginning aftr December
15,2008, except for disclosures of ross activity in tho
Level 3 rolfrward which is affecve for fiscal years
"beginning ator December 15,2010)

‘ASU 2000-12, vestments in Cartan Entes That Calcutta
Nat Asset por Share (rts Equivalent (ssued September
2008; tfectve for inten and annual reporting periods
"beginning ater December 15, 2008)

‘ASU 2009-05, Measuring Lieiltos at Far Value (issued
August 2000; effective fr the frst reporting peroo,
Including nterm periods, beginning ater issuance)

24 Rothstein Kass

26. Rothstein Kass

“Types of Inputs Types of Investments (Note 1)

ota Ld dt tngo wet rat tito ot an benno ct tation ayy ton
PE anges huss de tees ona ase cri

Rothstein Kass 25

27. Exhibit 2
‘Sample Note 1 — Disclosures of
Significant Accounting Policies

‘The ustratve financial statement footnote sciosures that
low navo taken nto consideration th roquoments outinod
in ASG 620. Lovo! designation within the far alo Mate
‘should be based on the lowest level input thats significant to
‘the fr value measurement ofthe security and may vary from
the designation ilustated in the disclosures below.

Fair Value - Definition and Hierarchy

Fairyalue i defined as the price that would be received to
clan asset or paid to traste a ability (ve. th “exit price]
in an exdety transaction between markt participants atthe
measurement dat,

In determining far value, the Fund uses various valuation
techniques. A fa value hierarchy for inputs is used in
‘measuring far value that maximizes the use of cbsorvable
Inputs and minimizes the use of unobservable Input by
eQuring thatthe most observable input are tobe used when
avaible, Valuation techniques that ar consistent with tho
‘market or Income approach ao used to measure fa value.
‘The as value Norarchy i categoriza into tve Ivo based
‘on the inputs a fotows:

Love - Valuations based on unadjusted quoted pices in
activo marks foridotca assets orbits that the Fund
as tho ability access.

Level 2- Valuation based on inputs, other than quoted
ricos included in Love, that are observable ether direct
orindirety

Love - Valuations based on inputs that are unobservable
and significant to the overall fae value measurement.

Fair value is a market-based measure, based on assumptions
‘of prices and inputs considered tom the perspective ofa
‘market participant that ao cuentas ofthe measurement
<ato,rathor than an ontty-spaifi measure. Therefore, von
when market assumptions are not realy avaiable, the
Funds own assumptions are sett oct those that market
participants would use in pricing the asst or lability atthe
measurement a

‘The avalbity of valuation techniques and observable inputs
can vary rom investment to investment and ar affected by
a vide variety of factors, including the typeof investment,
‘whether th investments now and nt yet stabiles

Inthe marketplace, the liquidity of markets, and other
_characoristes particular othe transaction. To the extent
‘that valuations based on models or input that ae ess
‘observable or unobservable inthe market, the determination
of far value requires more Judgment Because of the inherent
uncartainty of valuation, those estimated values may be
‘materially high or lower than the vals that would have
‘boon used had a ready market forthe investments existe,
Accordingly, the degree of judgment exercised by the Fund in
<otorining fair value is gratos for investments catogorizod
in Lovol3,n certain cases, th inputs used to moasure far
value may fall int dern lve ofthe far vals hierarchy.
In such casos, the level in to far value horarehy which the
air value measurement fas in its entirety is determined
‘based onthe lowest lvl put hat is significant tothe fair.
value measurement

Fair Value - Valuation Techniques
and Inputs

Investments in Securities and Securities Sold Short
Investments in socuriis and secures Sod hor that aro och,
‘wadable and aro sted on major secuits echanges aro valved
at holst reported sales pico as ofthe valuation ato

26 Rothstein Kass

28. Rothstein Kass

Many over-the-counter FOTC contact have bid and ask
Prices that canbe obeervedin the marketplace. Bid prices
ect he highest price that the marketplace participants are
iting te pay for an asset. Ask prices represent the lowest
pro that the marktplace participants are wang to accopt
or an asset. For secutios whose inputs are based on bid-ask
Prices, tho Funds valuation polices do nat raqur th
‘valve always bo a prodotorminod point inthe Di-ask range.
‘The Fund's poly for secuiis traded in ho OTC markets and
sted secures fr which no sale was reported on that date
are general valued at ner last reported “bi” pce it hla
Long. and last reports “ask” price it sola shor.

‘To tho extont hase secure re actvl traded and valuation
adjustments are not applied, they aro categorized in Love 1
the fr value hierarchy. Secures traded on inactivo markets
‘or valued by rtorence to similar instruments are generaly
Categorize in Level of ho fir valuohirarchy.

Investments in Restricted Securities of Public Companies
Investments in restricted sures of pubic companies
cannot be offered for salto the public until the Fund
Complies with certain statutory requirements. The valuation
ol ie securities by management takes Into consideration
the type and duration ofthe restriction, ut in no event doos
the valuation exceed to isted price on any major secures,
exchange. Investments in restricted securits of pubic
‘companies are ganoraly categoriza in Love 2 ofthe fait
value hierarchy. However, othe extent that significant inputs
sed to determine liquiday discounts are not observaba,
Investments in estricta securites in public companies may
bo categorized in Laval 3 of ho fair valo arch.

Derivative Contracts
“The Fund record its donativo actives a fa valo. Gains
and losses rom derivative contracts ae included in net gain
(ss) from derive contracts nthe statement of operations.

Option Contracts
Options which ar sted on major secures exchanges are
‘value at ther last reported sales price as of he valuation ato
or based on the midpoint of ho bid/ask spread at he close

‘of business. Depondig onthe frequency of trading ited
‘options are genealycatogorized in Level or 2 ofthe far
val herren.

Futures Contacts
Futuras contacts which rested on major series exchanges
1 value at holst reported sales price as of the valuation
data Futures contact aro general atogorizodinLovl 1 of
the far value Neary,

Warrants
Warrants which ar sted on major secures exchanges are
‘value at hoe last reported sales price aso he valuation
data. The far valuo of OTC warrants is measured using the
‘Black-Scholes option pricing modal a valuation technique
‘hat follows te income approach. This pricing model takes
into account ho contract tems (ncluding matty) as wol
as muii Inputs, including, time value, implied volt,
quit prices, interest rates and cure rates Warrants are
‘generally categorized in Love 2 or 3 oftne fl value rar.

Contract for Diferences
Contracts for aiferences aa raced on the OTC market. The
{a valo of contact or iflrences is derived by taking the
<itfronce betwoon the quoted price of tho undoing security
‘and the contact pice. Contracts fr dilrences are goneraly
categorized in Love 2of ho fair valo hierarchy.

Forward Contracts
Forward contracts ar traded onthe OTC mark. Tho fae
‘valve of forward contact is measured using observable
Inputs, suchas currency exchange rates or commodity prices,
úanpleato national amounts statedin the applcabl contacts.
Forward contacts aro generally categorized in Level 2 of tho
air vo rary.

Rothstein Kass 27

29. Intorost Rate Swaps
ntact ato swaps are waded onthe OTC market. The ae valve
for interest rate swap contacts derived using a pricing
model thats widely accepted by marketplace participants. The
‘Pricing modo takes ino account the contrac ems (nclucing
atu) as wel as multiple Inputs, inclui, whore appicabl,
interest rates and currency rats. Many Inputs into the modal

do not require material subjectivity a they are observaban the
‘markoplace.Intrest rate swaps are general categoriza in
Level 2 ofthe fire hierarchy

Total Rotum Swaps
Tota rum swaps ar traded onthe OTC markt. Tho fae
valu of total tum swaps i recorded atthe swap contract's
‘et equity valo. Nat equty is ealulated by determining the
‘notional far valve of the asset or habite underyng the
‘swap contracts, which are typical equity securtes, ands
Consistent withthe valuation procedures discussed previously.
Tota return swaps ar catogorizod in Levels 2 oF 3 ofthe far
vale hierarchy.

(red Defaut Swaps
(rod taut swaps ae traded on tho OTC markt. Tho

{al value fora creat default swap contact is deved using
pricing model tats widely accopted by marketpiace
participants. The pricing modal takes into account tiple
Inputs inclucng space contract tom intrest ato yield
curves, imerest ates, creat cues, recovery rates, and
Current ere spreads obtained from swap countrparios
and other market participants, Many inputs int the modal do
ot require material subjectivity as they are cbservable inthe
markoplaco or sat par the contact. Other than the contact
terms, valuation is heavily determined by the difference
tunen the contract spread and the current markt spread,
‘The contact spread (rat) generally fixed and the market
sproad is dotermined by tho cre risk of tho undoing debt
reference entity. the underying debt is quid and the OTC
‘market or he current spreads active, cred default swaps
ar catogorizod in Level 2 of the fr vaso rare the

under debts qu and the OTC marta for ho current
‘spread is not active, rad defaut swaps are catogeizedin
Level 3 of he far value hierarchy.

‘Swaptions
‘Swaption contrats ar traded on tho OTC markt. The a vato
‘of swaption contacts is derive using a pricing model hat is
widely accepted by marketplace participants. The pricing mode
takes into account the contract terms including maturity) as
wall as multiple inputs, lung notional val, interest rats,
‘currency rates and mplea lait. Swaptions are general
Categorized in Level oof ho air vale hierarchy.

‘Government Bonds
‘Th fa value of sovereign government bonds is generally
‘based on quoted prices in active markets. When quoted
‘prices are not avale ar val is determined based on a
‘valuation model that uses Inputs that include intrest rate yield
curvos, coss-curaney bass index spreads, and soverign
‘red spreads similar othe bond items of seu, matty
and senioty, Sovereign government bonds ar generally
‘categorized in Levels 1 or 20 ho fl value era

Municipal Bonds
“To tar value of municipal bonds estimated using cently
‘xecuted transactions, markt price quotations and pricing
‘models that factor in, where applicable interest rats, bond or
‘rect dau swap spreads, and volatiy. Municipal bends are
‘general categorized in Love 2of ho fir valo hierarchy.

Corporate Bonds
‘Te fa value of corporate bonds is estimated using recent
‘recited ransactins, markt price quete where cbsarvable),
‘bond spreads, or credit default sap epreads. The spread
data uses forthe same maturty as the bond the spread
data done not reference the isuor, thon data that references a
‘comparable issuer is used. When observable price quotations
1 ot avais, far vale is determined based on cash tow
‘models using yee curves, bond or single name ra deu

28 Rothstein Kass

30. Rothstein Kass

swap spreads, and recovery ates based on collateral values
as kay inputs. Corporate bonds are generally categorized

In Lovel2 ofthe fa value brary. Instances where
‘ignicant input are unobservabl, they ar categorized in
Level of he fr value hierarchy.

Bank Debt
‘Tar vale of bark dot is goneray measured using recenty
exact transactions, market price quete where cbsarable)
‘and market observable creat default swap levels. When
quotaions are unobservable, proprietary valuation models and
detau recovery analysis methods are employed, Bank debts
‘general categorized in Level 2 or 3 ofthe fl value hierarchy.

Commercial Mortgage-Backed Securities (CMBS)
and Asset-Backed Securities (ABS)

(CBS and ABS may be valued based on extemal pcapread
ata. When postion specie extemal price data rot sonata,
‘he aan thor based on pices of comparable sous.
or ca ow modas hat consider inputsncheing deta ts,
once prepayment rates, oss every. expected yl,
‘matty and oar inputs specie sach secu Icudedin tis
category ae certain interest-only secures, chino absence
‘of marta pices, are and as function a bearable whole
‘bond pices and cash ow ales of principal-ony bonds sing
curent markt assumptions a the measurement dato. CES and
ABS aro catogotzedin Love te fa vale Hearty whan
‘extemal ping datas obeorabioandin Lovel3 when exer
cin datas unobservable,

A December 31, 20%, the Fund had investments in ABS with
fir vaio of approximately $XX.XXX.000 which ae included.
In Loval3 of ho fl value hierarchy. These secures represent
‘mezzanine and equity tranches in various securitization
‘wysts. The underlying loan for these securities include
‘small business loan and crest card receivables that were
‘originated between 200K and 201%.

Investments in Private Operating Companies

Privat Equity Socuntios
Investments in privat operating companies consist of direct
rate common and proorad stock together orindwicuay
equity") investments, The transaction price, excluding
‘wansacton cost, typicaly the Fund's bes estimate of
{ai valo at inception. When evidence supports a change
to the camping value rom the transaction pice, adjustments
are made to oc! expected al values inthe investments.
principal market under cren market conditions. Ongoing
views by tho Fund's management are based on an
assessment of ends inthe performance of each undetying
investment rom the inception date though the most recent
valvaon dato

‘These assossmens typical ncorprate valuation techniques
at consider tho evaluation of arms ang financing and sale
‘wansactons wih Ir paras, an income approach racing
‘discounted cash flow analysis, and a market approach that
includes a comparative analysis of acquisition mules and
ring multiples generat by market participants. In certain
Instances tho Fund may uso mulipl valuation techniques
{ora particular investment and estimate tsar value based
où a weighted avorage ora Slot outcome wihin a range
‘of mutiplevakation results ese investments in private
‘peratng companies are catgorizod in Love 3 ofthe fae
vale rare.

Inputs raed upon by the income approach inclu annual
projected cash flows for each investment through ther
‘respecte investment horizons. These cash ows assurpons
‘may be probably weighted to retec he sk associated
wh achieving expected performance levels across various
business scenarios, Under the income approach, te prataly
ald nature of an invstmont maybe reflectodin the magnitude
ofthe select range of scout ratas or through appicaton of
‘separate iguity discounts.

Rothstein Kass 29

31. Equity inostmonts valued using a market approach uid
vahation mutiples times the annual Earnings Batre Interest,
“Taxes, Doprciation and Amortization ("EBITOA’) or another
performance metric such as rovenues or not earnings
“The selected valuation multpies wore estimated through a
comparativo analysis ofthe partormanco and characteristics
ofeach investment within a range of comparable companies
or transactions in ho obeorvabio martotpace. 1 aden,
the Fund generally applis lquiity discounts and control
premiums dependent upon the characteristics ofthe
incvidal investment aná lts spective markatplace

in private operating companies also consist
of dirt private deb invostmonts. Tho transaction pric,
excluding transaction costs, is typically the Fund's best
estimate of far valve at inception. When evidence supports
a chango in carrying value rom the transaction price.
adjustments are made o reflet expected xt values in the
Investments principal market under current market condiions.

Ongeing eviews by the Funds management are based on
an assossment of trends inthe performance and creat
prof o each underying investment rom th inception da

trough th most cent vation date, These assessments
‘yplaly incorporate valuaton methodologies that consider
the evaluation of ams-length francing als transactons
with tir partes and an income approach based upon a
‘Gscounted cash lou analysis. These investments in private
operating companies ao gonaraly inludod in Levo 3. the
far value hierarchy,

Debt investments valued using an income approach include
an understanding of ho undering company’s compliance
with Gb covenant, an assessment of the credit roto ol
tha underying company rom the point of orginal investment
to the stato valuation date, ho operating performance of
the undering company, trends in th quil and financial
1ovorago ratios ofthe undering company rom the point
of original investment o ho stated valuation dato, as wol
an assessment ofthe undorying company’s business
entarprise value, liquidation value and debt repaymont
capacity ofeach subject debt investment. In addition,
inputs include an assessment of potential yiold adjustments
for each debt investment based upon trends in the credit
Profil of the underying company and trends in the intrest
rato environment from the date of original investment tothe
stated valuation dat,

At Docomber 31, 206X, the approxinat fa valves of ho Funds equity and dt invostment in private operating companies,

by valuation methodology, ae as folows:

Blended Approach 00x00

30 Rothstein Kass

32. Rothstein Kass

Investments in Special Purpose Vehicles
Investments in special purpose vehicles SV) are ether
offshore privat investment companies or United Stats
Corporations that invest directly or indrecty through joint
ventures or United Stats imite labilty companies in privat
‘equity or debt secures, real estat ar ntanibe property
‘The Funds investments in thse SPVs are stated at far valve
y evaluating the fai value ofthe net assets of he SPVa.
‘Tho net assets ofeach underying SPY are valved based on
‘each underying investment within each SPV incorporating
‘valuations that consider the evaluation of Inancing and

‘sal transactions with third parties, expected cash tows

and market-based informatico including comparable
transactions, and performance multpls, among other
factors. Investments in SPVs are general categorized in
Level 301 he fae value hierarchy.

Investments in Private Investment Companies
Investments in private investmont companies aro valved,

asa practical expedient, ung he net asset valuations
provided bythe undertying private investment companies,
without adjustment, when the net asst valuations ofthe
¡nvostments ao calculated in a manne consistent with GAAP
{or invostmont companies. The Fund apps the practical
‘xpecont 1 ts investments in private investment companies
Oman investment by investment bass, and consistent with
the Fund's entre poston in particular nvesimant, unless is.
probable thatthe Fund wi sa a porton of an investment at an
amount diferent from the net asset valuation itis probable
‘thatthe Fund wil se an investment at an amount cert
rom tho not asset valuation or in oher situations whore tho
practical expedient not avaiable, the Fund considers other
{actor in adton to ne nat asset valuation, such as features
‘of tho investment, including subscription and redemption
grs, expected discounted cash flows, transactions in the
‘secondary market, bids rave rom potential buyers, and
‘overall markt cono nit determination o ar vale

Investments in private investment companies are categorized
In Lovel2 or’ of ofi value horse, In etomining tho
ovo, o Fund condor tho Ing o mo unt th investment
|sredoomabl, including netic and lock-up periods or any
‘otter rotin onthe disposition of the investment. The Fund
so considers the nature ofthe polls of the underyng

pate investment companies and thor abit o quid thor
Lundering investments. the Fund has the abit to redeem
ts investment atthe roportod net asset valuation as of the
Moasuroman dato, tho investments general categorized in
Leva 2of tf vale hierarchy, the Fund doesnot know when
‘wi have tho ability 1 rodoom th investment ri dows not
‘have he ability to redeem ts investmentin the near rm, the
investment is catogrizod in Love 3 of o ir ato rare

Fair Value - Valuation Processes

‘The Fund establishes valuation processes and procedures to
‘ensure thatthe valuation techniques for investments that are
‘categorized within Love 3 ofthe fa valu hierarchy are fa,
consistent, and vrtiable, The Fund designates a Valuation
‘Committe (he "Commitos” to overses the valuation
process of the Funds Love 3 investments. The Committeo
is compris of various Fund personnel who ar separato
‘tom the Funds portoso management and trading functons,
and reports 1 tho Funds board o directors. The Commitee
's responsible or developing the Fund's writen valuation
processes and procedures. conducting period rviows of
‘he valuation polis, and evaluating the vera faness and
Consistent application ofthe valuation policies.

‘The Committe meats on a mont basis, or more trequonty
as needed, to determine the valuations ofthe Fund's Level

3 vesiments. Valuations determined b the Committee aro
required tobe supported by market data, third-party pricing
Sources industry accepted pricing model, counterparty prices,
or othor methods the Committee som to be appropriate
including the us of intra proprietary pricing modas

‘The Fund perosicaly toss s valuations of Level 3 imestmerts
‘trough pertomning back asin of th sles of such iestments
‘by compañng tho amountsrelzad against the most recent fait
values reported, and necessary, uses the finings to carats
fs valuaton procecures,

(On an annua basis, ho Fund engages the servicos o a
national recognized thid-party valuation fm to perform
an independent rvi ofthe valuation ofthe Funds Love
investments, and may adlus ts valuations based on the
recommandations rom the valuation fem,

Rothstein Kass 31

33. Exhibit 3
Sample Note 2 — Fair Value Measurement
‘The Fund's assets and labio recordad a far value have boon categoriza based upon a fl vale hierarchy as described in

tho Funds sgniicant accounting polis in Note . The following abe peasants information about te Funds assets measured
at far vale as of Dacember 31, X (n thousand

Common toca
anto, De 23 s De
Consumer acte 20 anse
eae or ser
nessa
Mandato a wasn
Prato potomasets we wa
Cont Bonds 2250 22391
isa in privat investment companion
Gr
Esopo vu ‘400
Print oa Pr Pr
aan aan von
Sraptons 22
Capone amer
Pa opens 210
var contact 300
Gross ot! ETS Tone Er
Leu Mane ing argent ‘ac
‘Securitas purchased under agreements tores 27
70 EE TT

32 Rothstein Kass

34. Rothstein Kass

Tho fotowing table presents information about the Funds abies measured at ar vale as of December 31, 20XX (n thousands

resaca
Caoptons 960 9900
Putoptors son so
Gross Total vn ECS ves Toe
Tot drat contacts EXC 716.057 Tes Er

Rothstein Kass 33

35. ‘The fotowing table presents aia information about Lovl 3 assots and abies measured at air valu Goth aber ae
and unobservable inputs may be used t determine the far value of postions thatthe Fund has categorie within the Loval 3
category. As a resul, the unrealized gains and losses for assets and Habätis within the Level 3 category may include changes in
‘air value that wore atibutabioto both observable and unobservable inputs. Changes in Level 3 assets measured at ar value for
‘he year ended Docambar 31, 20XX (in thousands) wore as flows:

E cr | Tamar | ade | see
pement ga a mess . 8 sus s en
Canet un m a Pr
Mein am zu: enon wur an
Team pa an 24 2600 FT me o
nenn mer ME som Km wu cama
ers zum Wo m um Ma
Tomamos 510 (120 zus tee
Teer am am me mr Gus 47% ea,

Sins $ (12599 $ Gas $ BOM] $ ASS ag SPAM $ NS Ss 1056

34 Rothstein Kass

36. Rothstein Kass

Changos Lovl 3 Habits measured at ar alu or ho yoar and Dacembor 31, 20XX (n thousands) were as flows:

pe pe ane O "ST Arm
1,20xX | (Losses)! laute, ‘net at

CON se 18 un

$ ams aus s s sos sms m

(pauses pasos
echange mena gas ost fo ya end December 3, 20 vean eat December, 2K teca in net change

Al ransters ro recognized by tho Fund atthe inning ofeach reporting pero

“Transfers between Lovels 2 and 3 generally relate to whether, significant relevant, obsorvabe inputs are avalabe or ho fr value
measurement nits entre. Soo Note 1 for acciona information relate 1 the fa vale hierarchy and valuation techniques

Rothstein Kass 35

37. ‘The otosing tabi summarizos the valuation techniques aná signican unobsarabl inputs used forthe Fund's invustmnts that ao
categorized within Laval ofthe fa value hierarchy as of December 3, 20XX fn thousands

‘Asset aor ae)

Pratepetoredsacks SOSA Mco ——_Adurtodvauten mute

compare eros CRT

scons fore of manta 15-20% 07599)

Cont! remus ETA

Carora bona 52504 | mean ao acount orc of matey 10%

paseboacdsccuter 5 2H Denen Los sortes Da

Fw ase Probabates alt 10% 15 15%)

Prepayment ie 10% OR)

rats $ 1m Insusry accepted moss! | Horeaoutites CET)
bites tr vate)

Crt et see 51888 induct accepted model ret pends Coe)

Paco ras E

‘The Fund's other Level 3 investments have boon valued using unadjstedtnd-party trnsactons and quotations, unadjusted
‘storia thie party information, ortho unagusted net assat alu of ho vestments in priate investment companies. No

‘unobservable inputs internal developed by tho Fund have boon applied to these investments, thus they have been excluded
‘rom the above table.

36 Rothstein Kass

38. Rothstein Kass

Exhibit 4
Alternative Sample Note 2 — Fair Value Measurement - Private Equity Fund

‘The Fund's assets recorded all valve have boon categorized based upon af value ararchy as doserbedin the Fund's
significant accounting pocies in Noto 1. The flowing table presents information about the Fund's assets moasuradal ar valve
5 of December 31, 20XX fn thousands

$ De sos
on son
Untes Ken
Protesta
‘nes Su
Bee 200686 roses
Fotaimestments E77 75500 asso
= 320s SE 71]

Rothstein Kass 37

39. ‘The folowing table presents ational information about Lave 3 assets measured at fr valve, Both observable and undbserable
inputs may be usas to determine th fa valve of investnts that tho Fund has classed within tho Lovl 3 category. AS asu, tho
‘unrealized gains andosses forth assets win the Level category may include changes i far value that were attibuable to both

‘observable and uncbeeratie inputs. Changes in Level assets measure a far valuo forthe yaar ended December 31,208X (n
thousands) were as folows:

Unrest | pauses | soles nat | Balance | (Losses) tor

2X | coseno aro | sunnicnt

O $us s $ soon 5 nom scan
Uns andor

Boy Oe mom mos

Tot venis $750 SS 7 5 Bu s 5 Son 5 ms $ on

(amies out Lovato enters a hve Duran iy ad nen bara change
ange uence ge ower yr ended Dee 31. 01s resin sa Ne af Dior 3. 2RXie tected ne net

38 Rothstein Kass

40. Rothstein Kass

The following table summarizes the valuation methodology and significant uncbservabi inputs used for the Fund's investments that
0 categorized within Level 3 ofthe ta value horarchy as ol December 51,200:

Income Approsch/ Dacontes

Eoutyscunen TER eons pro

Marat sous Gussie

Costapprosch gusten
‘sss Apes

Income Aoproscn/ scout

E oil

Norma tn cr mar
‘Cont pram

scout / wog merge cost apt
Poe CAR Espais rus got
Es ti eatin ato

canoa mue
Amensomuige

Contoiprmun

Ent Vain {LM EDITA muta
napa Vin Forward ETA mun a
eat seres oman apre

opengl ot acts
on sereno cost agerauch

Covenant compance a

Espacio ppal 1ocorry/ agusto ys
agusto cc air
ght seres o nee prose

gs Avrage

Do x un)
oc
06 x 000)
206 20 06)

7966 098)
PET

Den
£04,000 0.000
ox

Comprar /non.
ra
Der
06 0)
EA

Rothstein Kass 39

41. The folowing table summaries the valuation methodology and significant uncbservabi inputs used forthe Fungi investments that
ro categorized in Level 3 ho fir valo hierarchy as of December 51,200:

reinan memo
Dn ee to Ao at a vo vs ama re
eme Éd 2 on
Premtm Bact mm
een Per
et epost Dass har me
|Comparabies BEN
Dre 2080606)
To Ber
Dre un
Woh erin man po 796-906 008)
Unten Aprscn Ie colar pot or Som.
Fre co prs Po
‘Wot arb quan ape 394-386 0)
Mranipom pte Pg Mode toy voy er
Far Valve of un stock Lao Er)
sont at rs
Carat era man on pr
Decor wat tai en

anomia fee managen rk aa actor int score nn nay an onsartr companies
‘te portote company sr a gun ype and mt 1 ea ay, rn o ivan cr foal ates age o
Inverter con igus of te mostra na tá anclar penn eo sung o! ho pata company projects pete
‘nce manage hs estate under een buen eier aa nor aay tt ee cua cars tebe como
(Wenns Gronau nano ve rca rts nen may ago rer amsn pac
(der som spe mab oust ri o cing ay aa ot ct

rela jc ct ron mst

40 Rothstein Kass

42. Rothstein Kass

Exhibit 5 Sample Additional Disclosures for Investments in Private Investment Companies

‘Tho olowng abe sumar he Fun investments in other private imestment compares sof December 1. 208K. Otter pita ves
comparing mari he Fund nestor mor ls nt ast, len inthe conden sche onwstnent am nds ere,
ie mar intents ar ggrgats. The Fun mesons priate este! companies have coran redemption ar haut restore
ich are dserned min toting tables.

Over sara 72000 Mina Mor Aaa No

arm u ‘9199000 550000 war rama No

Ober 2000 ose 007 son ets None

ES Same ar some a | LOA
Mere aire

rpm uc ae 00 CE
Br

ES amoo 120000 zo oca mam None
Prat au

Per asie e000 na NA sentant

over as01000) 000 na NA tal

Poesie 20% ob pra sion companys en din. po. 1 ntc at tuo be mado 213 us
a pr entrar Compay entame spa poor an odia lar) ee moth poto emo sono sta Dan 0
PR ne cp ta teh men aero cri 2 a

{hus ota toun ant e on wt ate oe SB a

bits strata te neg sos he An no id or 8 ee

The North Amara vain group cow nh proc tt ess Slay nthe ad caro int

‘The Nor Amara merger arbvage group sclsad he precaing table corso ivestnersin hae un tat vest in approximately
BD ets concerts machnlogy an 40% bond concerts econome, poll and goverment dren vers

‘The priate eq categres casein the above tbl invest primary energy companias base in Canada ann Aia. Thas vestments
can nt bo vota reseomed stad, he naire of he vests nis ag tha runs ae ra hough ON of
tne under eset ote had

To Fortea ct kt the ett at he sim manager under phat ves compari a unto ut hor
tigations Berg tr organzaonaldccumert. Tra Fund. rough As nestman patines! compares Susto ere
animes oscuros and pre aiment. In cömecon siens, Fund sj a maña and em nto oso

Fresita hd sk shot y pre meint comparas. Duato o rahe 10 Fa verte vw ches a A

Rothstein Kass 41

43. Exhibit 6

Sample Disclosures of the Sensitivity of
the Level 3 Fair Value Measurements to
Changes in Significant Unobservable
Inputs [Required for Public Entities Only]

‘Asset Backed Securities
A Docomber 31, 20%, tho Fund had asset backed secustas
wit a air value of approximately $X2XXX,000 classified as
Leva in the ar valu rary. The significant uncbservatie
Inputs used in the fa value measurement of tho Fund's
Asset backed secu are prepayment rates, probables

+! det and loss saver in tho event of faut Significant
Increases (decrease) in any o hos inputs in slaion would
rosut ina significant lower higher far valve measurement,
General, a change in assumptions used forthe probability

of faut is accompariedby a directionally similar change in
the assumption used forthe oss seve anda drecionaly
oppose chango in the assumption usd for propaymont rats.

Swaptions
‘At Decomber 31, 20KX, th Fund haldinvestmentsin intrest
rate swaptions with far valve ol approximately SX XI 000
lasse as Level 3 in th al valve hierarchy. The Fund
Values such swaptions using a binomial option ping model

‘A significant increase (deeroae) m ho volatty lo swaptions
and inthe estimated time to ex would result in a significant
higher Hour fa value measurement whi a sigaticant creas
(¢ooreas)ia ask ro rate woud rest ina igiicaty lower
(onen fa valve moasıroment

Credit Default Swaps
A Oocambar 3, 204K, tho Fund eld crt deat evap
(cot protection) witha fa value of appronimatly SX XXX, 000
said as Love! 3in tho far value earch. General,

tha fie value of Funds Laval croc deat aps vou
crease (increase as crc spreads increase (crease)
and recovery rates decreas (ncrease. Cre spreads and

recovery rates ar strong relato distinct isk factors of
‘ho undedyng rloanco obligations, which int erence
emtiy-speci factors such as leverage, vll and Industry,
mark based ek factors such as borowing costs or qui
‘ofthe undefingreterenceobigaon and macro-economic
condon.

Investments in Private Operating Companies
‘At Docamber 31, 201%, ha Fund hal investment in oquiy
secures of private operating companies wih a air valo of
approximatsy $XXX 0D class as Lei Sin the fair valo
erat, Under th dscounted cashflow valuation techni,
a signifcant increase (creas n the discount at would
result na significant lower (igh fair value measurement,
ea signant increase (crease) in te torial value
‘growth rat and normalized pre-tax operating margin would
os in significa higher ower far value measurement.
‘Under the guideline comparabe companies vahaton technique,
a signitcant increase (decrease nthe EBITDA and revenue
multiples would rutin asigiicantyhighor (ower) fir
value measurement

42 Rothstein Kass

44. Rothstein Kass

Exhibit 7
Frequently Asked Questions

General Questions

1. How i a "nonpublic entity" defined for purposes ofthe
‘exemption from the additonal disclosure requirements
of ASC 8207

As dotine within ASC 820, "nonpuble entity” is an entity
that does not most any ofthe folowing provisions:

(at debtor uty secures trado ina public market
‘either on a stock exchange orin an overdhe-counter
market.

(ti a conduit bond obiger for conduit deb secures
that ar trade in a publie markt,

(ON fies with a reguatoy agency in preparation for
‘the sale of any class of dab requises ina
Pubie market,

{Gti require tote or fumish financial staternonts with
the US. Secures and Exchange Commission (SEC)

(o) ti control an entity covered by criteria)
theough

Nonpublic ents are not required to include the disclosure
information on transfers between Level and Level 2 of
the far value hierarchy and the sensitvty analysis of Level
far value measurements to changes in unobservable inputs
and any nterltionships between those unobservable
Inputs in their financial statements

ile many private held funds are managed by an SEO-
registered investment advsor (RUN, the managed funds

ar nt subject to SEC regulation, andthe FIA 1 not required
to la he fnancia statements of such managed funds with
the SEC. Asa resul, privately hold und gonerty moat tho
Gotniion of nonpubic entity and are exempt rom certain ar
lue discosues as noted above.

2. When 6 the use of a valuation model to determine fair
value acceptable under ASC 8207

In most cases, th use ofa valuation model to determine far
‘vais acceptable only han quoted prices representing
úrdery transactions in activo markets are not avala.

The inputs used inthe valuation model shoul nudo.

‘the assumptions that markt participants would use in
Pricing the ass in a current transaction even the market
participants assumptions ar cant rom th funds
inputs A fund cannot ignore market data tpicaly used

y mare partspant, and that can o obtained without
undorgoing undue cost and fort, The best practico ito
back est models and calibrate the models assumptions to
‘continually improve the valuation process with he utimate
‘golf atv at an appropriate fai value.

3.1f there are multiple valuation techniques available, how
‘does a fund determine the most appropriate valuation
technique under ASC 8207

‘The valuation techniques wih the most observable inputs
shouldbe given pro over thoeo that have unobsarablo
inputs, The overall theme of ASC 820 1 eva the
fair valve mossurement in it ontrty within to ro
lave hiorachy as high as possible and to use the most
‘observable and reliable market inputs in af valve
‘measurement. However, funds should place los rolanco
om observable inputs which are indicative of disorder.
transactions. one valuation technique proves to be a
better representation of marke participant assumptions
than other techniques, Inn that valuation technique should
be used. Multiple valaton techniques can be combined
o value an investment. The weighting of each valuation
chiqui requ judgment bythe und. Once the vation
techniques are chosen, he best practico st use the
methods chosen on a consistent and contemperaneous
basis. a change in techniques or a change inthe
‘combination of techniques used wil rosu ina bate ll
Value messurement the change in approach is alowable.

Rothstein Kass 43

45. men significant, changes in vation techniques wi require
closure inthe footnotes tothe franca tatomeats

4. Are the air value disclosures required under ASC 820
sported on tho condensed schedule of investments or
In the footnotes tothe financial statements?

‘The ar value dichosures required under ASC 820 are not
Par ofthe condensed schedule of investments and should
be Included inthe fotnots othe financia statements

5. Are the far value disclosures in ASC 820 required for
{6oder funds whose sole investment ina master fund?

Goneraly he fi valu iscosures in ASC 820 are not
require for feodor funds whose sole investment sin a
master und. Food fund footnote dslosure shou include
reference othe vation and decis included in the
tached report of the master fun.

8. Whats the consequence when a fund assigns incorrect
levels tots investments inthe ar value hierarchy?

‘Assigning leves in the far valve hierarchy under ASC £20
is animportant part ofa fund's yoar-ond financial reporting
Internal contro system. a fund's internal contrls are not
adequate to assign th correct levels tits investments,
the tar value footnote islosures may be mately
misstated. The resulting deicioncy may be deemed a
‘ignitcantdoticlency oe mataria weakness which would
require a comment in an internal contol deficiencias ltt

7.A und holds a lability position in an over-the-counter
‘swap contract with a counterparty dealer. Which factors
should the fund consider when measuring its swap
Habit at fir value?

‘The fund's swap contracts an over-the-counter contract
for which quoted prices nan active market oran identical
laity are not avaliable. Under such circumstances, the

fund should measure the air duo of tho drtativo by
from tho perspective ofa market parteipant that olds the
‘donsca tom whan tradod as an asso at no measurement
date. such quotations avaiable. Tho fund may use a
‘iscounted cas fow method to estimate tha fa valve of
‘the contract and compare its own estimate of vale tothe
vale of the contract as reported by its countrparty. AS à
best practico, a fund should consider whether there are any
‘siglcant ferences rom the counterparty valuation that
may warrant an adustment 1 th funds estimated valve
and whether such differences reflect intinac ferences
hab.
A fund should also consider ho impact of nonportormanco
risk onthe valuation, including its own nonpeformance risk
alor taking into account the existence of master netting
‘agreements and collateral arrangements that might mita
such ik

‘when the contract is traded as an asset versus

Third Party — Pricing/Broker-Dealer
Quotations

8. Where does pricing from recognized third party pricing
service within thothreo-lvel

Prices tom recognized thd party pricing services or
broker-dealers can fall wii Levels 1,2 03. fund must
gain an adequate level of transparency to understand the
inputs used by th pricing services or broker-dealers that
‘suppor the prices provided to detomine whats the most
«sabio caseticton in tho far value Porat.

9. tte fund recoives broker-dealer quotes trom multiple
‘broker-dealers, can an average of the broker-dealer
‘quotes be used to ariv at far value?

“Tho ist stp inthe evaluation of broker-dealer quotes is
to detormine the principal market in which the asset or

lay trades withthe greatest volume or lve activi.
In principal market exit, thon the most advantageous

44 Rothstein Kass

46. Rothstein Kass

markt should bo Used, ho brokers providing the quotes
ar participants in the principal or the most advantageous
markt, ASC 820 allows for funds to uso a mi point within
‘he bid-ask spread o the quotes recsved by the brokers as
practical expedient.

10. How can management determine whether a broker-
dealer quote is observable or unobservable for the
purpose of assigning a evel designation under the
fair value hierarchy of ASC 8202

In order to evaluat

wether broker-dealer quotes
aro observable, management should obtain suiicont
Information on tho quotes to ostabish whether the
‘quotes representa binding commitment 10 buy or sol
a that price, or are non-binding and/or whether the
quotes roflect wansactions that actually occurred in

‘he marketplace or ar indicative and model based,
For indicative quotes that are developed using a
‘modb:based technique, management should evaluate

the extent to which unobservable input are used.
Management should algo evaluate the availablity of
those quotes to tha marketplace and the consistency
‘among the sources. Observabla market inputs should
not be limita to information that is any available tothe
entity making tha far value determination (aro a smal
group of users). Observable market inputs should be
really avaiable and distributed to participants in that
‘market. in dalton, observable inputs should include
A level of tansparancy that is reliable and veritable
Management wil ave to use its judgment to evalua
whether inputs are “observa

“Te range botwoon bid and ask prices an bo used to
termin whether tho marta acto inactivo. Amore
acto markot wil tate mor nano rangos beton Bid
and ask quotes wth liquid markets having larger spreads.

AA best practice is to utliz a back testing program to
‘alate the inccative broker-dealer quotes. To the extant

thore ls an adequate number of transactions and tho
variances botwoon the Broker dealer quotes and actu
mare transactions ar reasonabio, back testing may
help vof the refablty ofthe market inputs.

‘1, What would the level designation be for securities
‘that are priced using indicative broker-dealer quotes.
‘with ogaldiscialmers?

An indicative quote as typically provided by a broker
dealer or market maker toa trading party isnt tm and
the broker-dealers not obligated to transact at the
‘quote provided. À und must evaluat whether the quete
is roy avaiable and distibuod tothe participants in
that markt. In ation, a fund must oxalato whether
tho quote srl and verbe. I management can
‘obtain transparency on the inputs used, management
may have adequato information to determine thatthe
inputs ar observable and assign a Level 2 designation to
the ated security adequate transparency cannot bo
‘obtained, or management determines that the inputs are
unobservable tho related ocuriy would be assigned a
Love 3 designation

Fair Value Hierarchy — Level 1
Considerations

12.A fund purchases a security on Exchange A. The security
Is traded on both Exchange A and Exchange B. Exchange
B has more liquidity and is more active than Exchange A.
Does the fund determine the fair value ofthe security
using Exchange A or Exchange B prices?

non measuring tir valve under ASC 820, a reporting
Only must fist determine the principal market fora
financial instrument. The principal markt is the one
‘withthe greatest volume and evel of activity forthe
asset or abit (Exchange Bin this casa) the fund
‘cannot dent a principal market, ortho principal markt
isnot accassboto tho fund, tho most advantagnous

Rothstein Kass 45

47. markt shoud bo used to amo tir valu, The most
‘advaniagoous marks the market which would assign
tho highest fa va o an asset or o twos fa value in
ranseringa labäty net of transaction cost, and thats
acceso othe fund I the fundin this case has acess to
both exchanges with nether boing the principal markt, ho
fund woud us the most advantagoous market. the fund
‘es not have access to Exchange, but has access to
Exchange A, the und would use the price from Exchange A

2. For securities that trade on multiple markets, how can
a fund determine what isthe principal market under
ASC 8207

Sonora tho market nor à fund nomally entra into
Lansactions à presumed tobe the principal make, unless
‘href evidence tothe contrary. Consequent fund does
not need t perform an exhaustive search for markts that
may have more activity forthe asset or aby than the
‘market in wich that reporting entity normaly enterito
traneations. fund should consider public information

‘on volume ransacted and owl of actvty, and evaluat ts
lity o access the market in making its determination,

8. What are the factors to consider when determining
whether the market for a thinly traded security is
“active” or “inactive”?

Under ASC 820, an active markt defined as a market
in which transactions for hs asset or laity occur
‘with suticient frequency and voluma to provide pricing
information on an ongoing bass. Curent, thera has not
been any quantitative guidance issued by the SEC, FASB
or other industry paricpant on the datniton ofan active
matt. However, ASC 820 provides factors to consider in
{determining whether there has been a significant decrease
inthe volume or lve o mart act, Tha factors ta
fund should evaluat include (Out are not mito to)
tho osorno:

+ Tero are few recent transaction,
+ Pic quctaons re nt devoped using cure nao
+ Price quotations vary substantl lor over timo,

or among markot maker (or example, in some
brokered markets)

Indices that previously wore highly correlated with

the far values of he asset or ab ae demonstrably

‘uncorrlatd with rocant indeation o fa vaio for

that asset o abit,

+ There's a sigifiantncrese in imped quit rik
promiums, yields, o portormanco indicator (such
28 dotnquency rates or loss severe) for observed
transactions or quoted pricos won compared with
the funds estate of expected cash fous, aking into
‘account al avatablo market data about credit and
‘thor nonperfrmance risk forthe ass r ab.

+ Theres a wide bid-ask spread or signifiant increase
in mo Di-ask spread

+ There's a significant decia inthe activity of or here
ls an absence of a markot for nw issues (hat,

a primary market fo the asset or ability o similar
asset or labs,

+ Lite information is pubeiy avale (or example, or
transactions that tae place in a prncipakto-prnchal
mas,

+ Thor mit pub Boat or an ivestment closely
Pay a fund, or by a syndicate ol investors which
tho und paripats in or example a sponsored
co-imosimnt structure).

In dotermining whether a market or a thinly traded
‘secu is “active” or “active wo recommend that a
fund download the trading volumes for those securities
‘along wth thee pice fe on a parodie basis, We also
recommend that a fund should develop a system that
‘would highight when a socurty 5 average trading volume
does not mest a certain quantitate tveshold (tobe
determined by managomenÿ. This reporting system could
‘generate an exception report for management to avaluato
‘whethor secures with ow ring volume should be
designated as Level 2 secures.

46 Rothstein Kass

48. Rothstein Kass

15. A und invsts its excess cash in short tem investments
such as money market mutual funds, that are considered
‘cash equivalent. Should cash equivalents be inched in
‘the far value hierarchy table?

‘Yes. Cash equivalent shouldbe included in ho fair value
hierarchy table using th same valuation procedures
and considerations as other secures and factoring in
‘titra suchas liquidity and valuation ofthe undering
and whather they are traded inactive markets
‘with observable inputs. Cash equivalents ae typically
designated as Level Y nthe far value hierarchy,

18. A una holds 75,000 shares of a company thathas traded
atan average volume of 5,000 shares per month over the
past 12 months. The fund is concerned about the impact
‘that selling a large block of shares would have on the
share price. Can the fund take a blockage discount nthe
mossurement of he fir value of ts holding?

No. Blockage discounts lao to tho size of th transaction,
‘which ie factor space to the report entity, ana do
not elta character of tha indhidual security rom
‘the perspective ofa market participant. ASC 820 prohibits
the use of blockage discounts at al levels ofthe air
vale rare:

17.How should a und determine the far value of a
publicly traded security when a current price on the
‘measurement date isnot avaiable due to the exchange
markets being closed for an extraordinary event?

Under ASC 820, und management shou fst determing
tho principal market ortho scurty th markt wih the
ghost volume and veo ety forthe security) ine
fund cannot identity the principal maka oi mo fund.
unable 1 obtain a quoted pco rom te principal market,
‘the most chantageous marke thats accessible tothe und
‘maybe used ovale the secure markt tat would
‘assign he ghost far val to an ass oro lowest far

value whan teanstering a ay at of transaction cost)
the absence of rable quoted prices rom the principal and
‘ortho most advantageous mara ranagomant may valve
the investment based onthe last avalabl quoted pris in
the principal mart. Any aeoralintraton that may
avo animpacton the value ofthe imostmant, and is
avai without unde cost and efor, mus ago be taken
into account such information would be considered by

the marketplace. Management should view ay variances
between the last avala closing price andthe net able
opening price in the market and determine the variance

is significant enough to want an adjustment east
walle pce. Asa practical consideration, management
ay alo consider wheter tho poten impact of tho
varinco forthe porto a a wholes signifiant tothe net
sat valo of he fund. should also be noted that any
slortcant ajusten due o aermaret avensis in
a Level 2 or Lol 3 designation n o tr alo hierarchy.

Is fund required to disaggregate Level investments
in the footnotes to the financial statements by industry
or geographic concentrations it Level 1 investments

are already disclosed on the condensed schedule of
Investments S01"?

‘othe extort the require Lovet investments isagoregaon
information included lseuharein the financial statements
1.18 SON there wou ot bea nod o repeat th Love!
‘investment tsagaregaton infrmatonin te le valo
rar eel tabular cscs, We recommend acing
arelrence o o far value Heratchy dslosuencicating
that he raqured aggregation of Lvl investments is
Sci the SOL

Rothstein Kass 47

49. Fair Value Hierarchy — Level 2
and Level 3 Considerations

19, Should a discount be taken when determining the fir
value of a restricted stock?

À lund must assoss the reason forthe restriction and
ether te estriton woud be a consideration by market
Partpants when determing tar vale. the starting
Point of valuation is the exchange-traded price ofan
unrstictd stock, typicaly a discount would bo taken to
rive at fr vale inc a market partcpant would assess
‘higher risk forthe restcte postion and thus demand a
higher than expected ntemalrat of retun. However when
‘amamber of und management ls on tho board of directors
holding and thraora tho fund has certain estictions
on sale of he related security, a discount would not be
taken since the restriction would not be trnslred 10 a
yor a he secu ho rocio son the security and
‘such resticton would Wansfr tthe holder (a9. Rule 144
soc discount wuld typical bo taken.

20. fund has adopted a policy to apply a standard
discount rato of 15% and 10% tots invostmente
In restricted stock and private investments in publie
equity (PIPES), respectively, when measuring fi value.
ls this policy appropriate?

No. The application ofa standard discount rato to
investment such as restricted stock ora PIPE would

not comply with ASC 820. fund would noed to consider
the characteisic ofthe individual investment as well as
the changing ekcumstances surrounding ts restctions
Carl analysis ofa relevant drivers ofthe discount,
including but not imedo the lngth ofthe resto,
float and markt capitalization of th issue, quit line
‘markt place and other qualitative and quantitative factors
pectic to the securty should be evaluated in dotrmining
tho appropriate discount rato,

21.A fund invests in a currency forward contract onthe
EUR-USD that expres in 30 days and which is valued
‘with reference tothe spot rates of the underiying
‘currency par. How should this contract be classified
Inthe fair value hierarchy?

Currency forward contacts ao over counter natumants.
Unike futures, hoy are no raged on an exchange. A
‘one-month currency forward contact which can be valved
based on observable market inputs such as currency
spot rates of an actively traded cumency par suchas the
EUR-USO would typical be classed within Lowel 2 01
the far value hierarchy. Depending onthe maturity dae of
tho contract andthe characterises of ho market of be
underng cureney pair corn currency forwards may
Do clase within Level 3 ofthe far alu rare.

22.16. total return swap where the underying notional
position is an actively traded security (Lo, Level
security) considered Levelt or Love 27

“Tho unit of measur is tho total eum swap contract and
not the underying stock. total etun swap contract
‘where the undefying notional position is avi traded
‘would lay fa nt Level 2, provided that the significant
inputs used to determine the valuation are observable

23. Afund invests in a recelve-tixed, pay-varibie interest
rate swap with a seven-year term. The swap is valued
using an industry-sccepted model and is based on
‘reference interest rate that can be observed at
‘commonly quoted itervas forthe fest five years of
the swap torm. For Year 6 and Year 7, the fund derives
‘the swap rate through extrapolation. How should the
swap be classified under the fair value hierarchy?

Intros ato swaps tat ao basod on a id curve that is
obsavabe at comment quoted neral or substantially
the fl tam ofthe swap are typical cassifed as Level

2 otto fa vale hierarchy. Fr the swap inthe example,

48 Rothstein Kass

50. Rothstein Kass

‘observable data for Yoar6 and You 7 ofthe swap yield
uv ar not aval. To tp extn ho extrapolated values
‘of ho ap rato for Year 6 an Year 7 ao corroborated by
‘observable market data, or instance by colon with an
interest rat curve atis observaba at commony quoted
intervals ver th orm ofthe extrapolation the fund can

il clas the interest rate swap as Level 2in the fie
‘vale birarchy onthe other hand, the extrapolations
based on assumptions nat lyon unobservable inputs, or
Instance sigatcant adjustments are made tothe correlation
Inputs used by ho fund, a Level lssficaon would be
mor appropriate.

24. Where do options fll within the fir value hierarchy?

‘Options that are waded on an exchange in an activo market
‘would be assigned a Levelt dosignaton. Options that
ar traded on an exchange in an inactive market would
typically be assigned a Level 2 designation. In order

to determine whether Levelt classification for an
‘exchange-traded options granted, a fund should make
an overall assessment of whether the mark or the
‘options active or inactive, considering factors such a
‘he numberof recent transactions and trading volume,
‘the Disk spread, and whether quotas are reflective of
‘currant information. Fer instance, a und may conctde
‘that an outotthe money exchange-traded option may
‘be classified under Level of the ar value hierarchy
basod on an overall assossmont of markt activ, event
‘ew transactions have occured on the measurement dats.

‘Ovorsho-countr options that rage basodon the sotiomant
‘of simiar exchange-traded options Cook al” options)
aro typical classi under Love 2 01 he fae value
Ierarchy. Options valved using a widely-accopted and
non-propritary model where the input, such as impliod
‘olay, ae observable, would aio typical be assigned
Love 2 designation. For instance, an equity option
‘valued using the Black-Scholes model where the implied
‘volatity and dhidend yield ofthe undaryng stock timo to

expiration and sk oo rate ao observable, would typical
De assigned a Level 2 designation. Options that ao priced
via a model using historica voit, other unobservable
Inputs, orinludesignican judgments and acustments
to arive at fair value would typically be assigned a Level

2 designation.

Whats the love! designation inthe fir value hierarchy
for PIPES including the warrants typically attached to
those transactions?

API investment where the fal value is primary based
‘on the price ofa similar aetivay-radod pubic equity would
'ypicaly bo cassia within Level 2. a significant Equity
(iscoun rom the uderying publ equity price i taken,
the investment may fal ito Love 3. In acc, converte
Securities that re notin the money" whore the ar va
18 based upon the underying borrowers credit worthiness
and other unobservable input wil al into Lovo 3.

“Typical, warrants in PPE transactions wi a into Lovel
3 inc In input of historial olaity into a models not
an observable input. Warrants can cccasionaly al into
Level2 they ae inthe money andthe undefyng pubic
security is actively traded or an observable imped volt
an be obtained from market data, The challenge isto
determine the lowest leve input that is significant to
‘the fair value measurement. For in-the-money warrants,
volt may not bo a significant input to nr far value
and thus such warrants may fall in a Level 2 designation.
Iti be up to the judgment of management t evaluate
‘the sigiicance ofthe inputs

Rothstein Kass 49

51. 28.1n an liquid market (such as the asset-backed security
market there can be a disconnect between the
intrinei value. the value determined by applying
data inputs to a valuation which may presume the
position would be held to maturity) and what the
current quoted observable prices are forthe security
inthe marketplace. Can te intrinsic value bo used in
feu ofthe quoted prices when the current market is
ot active and has unusually large bid-ask spreads?

‘The use of unobservable inputs is appropriate only to
the extont that observable inputs that el orderly
transactions in an active market are not avaliable. ASC
820 states that entiy-ove inputs (10. unobeorvabie) can
bo used as long as tharos not contrary data indicating
that market participants wou use dieron assumptions
A such contrary data exists, a fund must adjust its
assumptions to incorporate that market information. A
{und must also consider the risk inherent in the valuation
technique used and the rik inherent in the inputs to

the valuation technique. ARold-o-matunty mentality
does not conform to ASC 820 since it reflects an entty-
specific assumption. ASC £20 requires the far vals
‘measurement 1 rest an ext pric in eurent market
conditions, including the relative liquidity ofthe market.

27. there are no recent transactions for an asset-backed
security and a fund uses matrix pricing based on
observable data points for securities that have similar
attributes and vintages, or a fund uses the ABX credit
derivative index to price the security, what would be the
resuting level designation under these approaches?

Using mat pricing based on obsorablequotsor jor
cures for similar securities or using the ABX rot date
index a starting poi ovalo an asset-backed socuty
‘would ypiealyresut in aLave2 class or ho
secu. Adusiment 1 Lave 2 inputs wil vary depending
‘onthe factors specie othe securty (a9. comparably,
étage volume), However, any adjusimant 1 the Lvel2

inputs ais signifiant tothe fa valve maasaremant wa
op the désignation to Lave, Funds should obtain an
Understanding ofthe processes imohedin constructing the
ABK cect deta index or oor forms of matrix pricing
to determine he matrix rings responsive to changes

in markt contion ina trey manner. the ouputsot

the mat pricing are indicative stl ata, nds shoud
‘onside the use o valuation austmerts that elt current
assumptions about matt conditions.

A tuna holds an asset-backed security thats valued
sing broker quotes. At some point during the yea,
broker quotes forthe security are no longer availabe,
and the fund changes ts valuation technique to use an
intornal model instead. When should the adjustment to
the fir value ofthe investment be recorded?

Fair valve measurements are considered accounting
‘states. Adjustments to ho air value of the ivestmont as
res of achangein the valuation technique waltypicaly
be recorded in the eurent accounting parc ending on e
‘alton date of ho investment. sigan os overall
far valve measurement, te fund required to dacoss the
Changein estimate in the notes tts financial statment.

What lovel designation should a fund assign to a
deerre oo lability which oinvested into the fund?

A dolore lab has th charactoistes of a host debt
instrument with an embedded total etun derivative
feature whichis indexed other othe fund's rate of
rotur, participation in specific assots ofthe und, or

8 combination of both, Since he unit of account of

the doter Habt is feront rom tho underying
investments ofthe fund, the der Ebity may not be
‘dsignated a Lowe 1, van Hal ofthe undoing assate
and labiltis are actvay marked on a daly basis Funds
may also consider analogized guidance of investments in
private investment companies measured at far vals using
the practical expediont based onthe abity to redoom at or

50 Rothstein Kass

52. Rothstein Kass

tina noar tom of tho coporting date when termining
between Lovet 2 and Love 3 designation

30. Are repurchase agreements and reverse repurchase
‘agreements required tobe disclosed inthe fair value
hierarchy level tabular disclosure?

Repurchase agresments are investments a air value and
‘sould be ince the far value Rerarchy level tabular
sclosur. Reverso repurchase agreements may also

be presented at far value afr value option election is
made under ASC 825 Financia Instuments. I such case,
thoy would be included in ho far value Rorarehy ove
tabular disclosure In thoabsonce of a fa valve option
‘lection, reverso repurchase agreements ar considered to
represent a fixed, determinable obigation 01 und, wouls
be proentag at face value, and would not bo included in
‘he far value hierarchy lve tabular dicisuro.

“Typically, the far value of à repurchase agreement or
reverse repurchase agrooment (fe ar value option

is olctoc) is computed using a standard cash low
‘discounting technique (ncome approach) The inputs

o the valuation would typcally include contractual
‘cashflows and collateral tunding spreads, which may
be estimated using various benchmarks, interest rato
el curves and option volatiles. In instances where
unobservable inputs are deemed significant, repurchase
agreements and reverse repurchase agreomant aro
‘lassie in Level 9 of the far value hierarchy, otherwise
‘hey ar classified in Lovo 2of the fa value hierarchy.

31. A fund holds a group of interest rate swaps with
one counterparty under the same master netting
agreement that canbe valued on a stand-alone basis
using Lovel2 inputs. The swaps are managed onthe
basis ofthe group's net exposure and are measured
‘at fair value under the exception. The fund applies a
credit risk adjustment to the fair value ofthe group
based on ts assessment of counterparty risk. How

should the croit risk adjustment be allocated tothe
individual contacts inthe group and how would it
tft the classification ofthe individual dorvative
contracts inthe far valve hierarchy?

‘ASC 820 does not prescribe a particular method to
alocato a creat risk adjustment determined atthe group
lovato the individual assets and labios in a porto
measured at fa value under the exception. though any
‘locaton methods inherently subjective, a quantitative
‘location woul be appropriate iit was reasonably and
consistent applied. Under ho relate ar value approach
‘locaton method, o instance, a fund may alocate the
‘rod isk ajusimont to each asset and abit in tho
group based on their relative far values. tomato,
tho cred sk adjustment could be alocated ony tothe
instruments that ao in an asset postion tho overall
rat risk atmen! is negative) rn a laity postion
(to overall crit sx ajustment is positive)

To tho oxtont th crit risk adjustmont is significant for
the incividos contracte within the group, the contracts
Would be classified as Level 3 inthe far value arar.
‘Also, while the ar value ofthe individual contracts
reported in the financial statements may change as a
resulto! the application of the credit risk adjustment
under the exception, thor presentation (on ane or
gross bass) inthe schedule of investmanto, fa value
hierarchy loves tabi and Level tables (applicable)
would not be atfectod.

‘Can afund rely on other disclosures within the financial
statements in leu of applying the disaggregation
requirements to the disclosure ofthe Love 3
rollforward?

Gonorally tho other disclosures within the financial
statements donot provide sufflent disaggregated deal
‘ofthe activity ot fund investments by iserte classes.
‘of assets and labio. The isaggrogatin o far value

Rothstein Kass 51

53. “disclosures requis significant judgment and should
‘ie consideration o the nature and risks relevant o the
asset and lability classes measured at far value on a
recurring basis. Wo fol that consideration of tho Level

3 activity components, such as significant investment
purchases or significant valuation write-downs, provides
a more meaningul bass to dsaggrogato a class of shared
economie exposure (eg. Industry, geographic, vintage,
te) than an evaluation solely based on th signticance
‘of ivestment balances as of the reporting date

For example und may hold a substantial amount of private
qutimostmants that had no transaction ac dig ho
reporing posed andi marked svbstantaly to amo valves
28 fom the por period. A csangregatd level of tal my
bool lit use oth tnancal statement users. Howe a
‘und may tela vestments ina dstossed industry win ts
prat equity porto which hav been win downto or
Amor granular deta of the clases subject to giant
‘ett the Level 3 rolonar may provide meaning
inermatonto the usas of he facial statements

ie recommend that funds consider the significance of
city within meaningful clases during the reporting
period as a primary motrin determining the appropriate
lovl of detal which shouldbe provide forthe discbsure
‘ofthe Low! 3rolfonward.

33, What are funds required to address as part of the
“disclosure on valuation processes for investments
‘categorized as Lovel 3 in the far value hierarchy?

Under tha implementation Guidance of ASC 820, a fund
may disclose the flowing information t saity the
“sclosur roquitemonts on tho valuation procossas for
Lovo 3 invostmonts:

+ A description ofthe group within the fund that decides
‘he funds valuation polis and procedures, o whom
‘he group rears and the nemal reporting procedures
In place for example, how prin, ik management

‘or aust commits discuss and assess theta valve
measurement,

+ The koquency and metro for caltration, back esting
and other testing procedures on pricing models

+ The process for analyzing changes in fair value
measurements from paro to period.

+ How the reporting fund determines that third party
information used nthe far valve measurement, auch as
broker quotes or quotes provided by thie -part pricing
sores, was developed in accordance with ASC 820.

+The methods used to develop and substantiate the
‘unobservable inputs used in fal valo measurement

“The purpose o the disclosure is to hol provid financia
statement user with addional transparency into a
funds valuation processes and to understand how the
und managos the subjectivity inherent ho valuation
‘of Level investments. Funds should review har internal
processes and consider the industry best practices on
‘sound valuation processes. hero re various industry
pubcations which address common themes which
(can be uso considerations towards the design and
Implementation of sound valuation processes, including:

+ Governance cue the valuation process

+ Having adequate documentation o pocas and

procedures

Implementing segregation of testo mitigate

confits of intrest

+ Consistency in the application of valuation procedures

+ Avalabaty and use of multe and independent
sources of information

+ Rovowing the appropriateness of methods used

+ Proving transparency ofthe procedures and
valuation route

Ati crea! to note that a fund wil need to tallor the
disclosure to provide an accurate representation ofthe
‘valuation processes being implemented by te fund. An
approach that isnot customized to the specific features

52 Rothstein Kass

54. Rothstein Kass

‘ofthe lun operations may rest in a sctosur which
is loss moaningl to th read, and can bo misleading
i me disclosure i nconsiston withthe actual practicos
ofthe fund

34, Under ASC 820 is there a requirement to present the
“quantitative information on significant Level 3 inputs
in tabular format?

Yes, funds ae required to disclose the quantitative
information on significant Level input in tabular format.
“Tne Implementation Guidence of ASC 820 ches a tab
that presos, foreach investment cias, ho aggragate
far valu by valuation technique used and, or each
technique, sing of the significant unabservabie inputs
and te values (range of values) used, as a sampi table
to satsty tis raquramant. Utimataly 11 managomant's
responsbilly o provide no required information in the
‘most suitable format or ho financial statomont users,
considering the characteristics ofthe investments,

the valuation technique and the typeof inputs usos,
(Quantitative information fr significant unobservable inputs
‘that have not been developed by management, such as
Prior transaction prices or td-pary pricing information
used without adjustment, is not required to be disclosed

35. und invests in corporate bonds that are valued using
broker quotes and are classified as Level 3 in the fir
value hierarchy. Which information should the fund!
provide to satisty the diclosure requirements about
significant inputs in Level fale value measurements?

Under ASC 820, the fund should provide a qualitative
‘description o te inputs used inthe corporate bond.
vatuton, T the extont the quotes are unadjusted,tho
{und snot required t provide quantitative deta lating
forintance othe number oro the vala/rang of ates
‘of quote used. I however the und applies a valuation
adjustment tothe broker quotes developed by ra paris,
the valaton adjustment would quality as a Level input

developed by management ang iligicant adios!
“quantitate information on to agjustmont wl bo required.
‘Tho fund may considordisctosng the due aigonco
procedures appli to gain comfort with the third-party
‘developed quotes anat determine the ratur of he quotes
fa ncicativ versus transacton-based) uted in far va
measurement under te terns of ASC 820.

36. fund holds significant investment in mortgage
backed securities that are classified under Level of
‘the fai value hierarchy. Which information could the
‘und provide to help users ofits financial statoments
to evaluate the quantitative information on Level 3
Inputs thatis required by ASC 8207

Inaction tothe quantatve information thats quiet
under ASC 820, tho fund should consider providing
ational information on ha natura ofthe secures being
moasured at fair value using Loval inputs, including the
‘characteris ofthe eacur that ar considered inthe
detormination of ho relevant inputs, and how third party
information such a broker quotes vas taken nto account
‘whan measuring far alu. For example, for mortgage
backed secures, ASC 820 nates that a fund may
‘consider dsclosng, among others, the types ofundarljing
loans (prime loans or subprime loans, olatrl, guarantee
‘orother credit enhancements, senior evel ofthe ranches
‘or secur, the year of save, tho welghted-average
‘coupon rate, matar and geographical concentran of
the underying loans, the weighted-verage coupon rate,
maturity and erect ating of the secuies.

37. What should a fund disclose when a third-party pricing
services engaged to value a porto of OTC derivatives,
and the fund is nt privy tothe inputs used by the
Pricing service due to the proprietary nature of the
models involved?

Rothstein Kass 53

55. Under ho unique ercumstances in which the funds unable
Lo obtain information rogaring the inputs usa fo tho
model-based valuations developed bythe pricing sori
‘we belive that at minimum, the fund should work with
the pricing service to determine an adequate qualtatve
descpton of he valuation process inched and to diese
tho fact that th inputs used inthe valuation are nt avala
‘to tho fund. In ation, tho fund should consider whether
‘thar disclosure approaches, such as the inclusion ofa
‘qualitative senstvty disclosure would mitigate the absence
‘ofthe quanttatve input disclosure Ham resulting in a
mata doparur rom US. GAAP.

36. During the year, afund invested in a Level 3 option
valued using significant inputs developed by.
management. The option was sold by year end.
Al year end, the fund did not hold any Level 3
investments. Does the fund need to include in ite
financial statements the disclosures of quantitative
unobservable inputs and valuation processes?

“Th disclosure requirements in ASC 820-10-50-2 address
{airwave assets andlabties reported inte statement of
"rancia concton as of horeporing date. When a fund
‘doesnot have ary Level 3 investments atthe endo he yea,
the disclosure of quantatveinputs and valuation processes
may net be material tothe Inandal statements trom a
Aula standpoint. However, in certain ckeustances,
‘hen Love investments held dung the yar but not at
year end were significant othe funds operations and had

a signiicant impact onthe funds performance, th fund
should consider including addtional disclosures that can
provide meaningful information to tho users of he financial
statements regarding he overal impact of the fund's
Lava 3 invostmonte ring tho year. Tho inclusion of such
‘isclosures may be necessary to prevent the financial
‘statements trom being material mislacing

Fair Value Hierarchy — Level 3
Considerations - Investments in Private

Operating Companies

99, Foran investment in private operating company, how
does a recent round of financing factor into the fair
value inputs in arivng at fair value, as well as the
level designation within the fair value hierarchy?

Won terminal valve ois investment ina private
‘erating company, fund should consider (0) the ming
and pricing o recent ound of financing an) what
any matonal vont occured subsequent tothe transaction
‘that would impact the far value measurement onthe
measurement dato Since capital structures of a private
operating company can be complex. a ul analysis ofthe
contractual tome of recent round of francing must bo
part of the fair value measurement process. General,
Private equi investments wil be classified as Lovel 3
‘ASC 820 encourages multiple valuation techniques when
(dening with Level investments, When using multiple
valuation techniques, a fund's management may place
greater weight on th pice tom the most recent ound
‘offinancing over valuation techniques such a discounted
cash flow projections or a technique based on a multiple
‘of revenues or EBITDA derived rom market comparable,
I such information is deemed tobe the mos relevant
Indicator of far value This can bo particularly riet
{for development stage entities which do not yot have an
ostabisnod history of operating performance

40. Cana fund measure the fair value ofan investment in
a private operating company based on the initial cost
as a proxy of fir value?

ini the inti transaction cost of an investments typically
‘at far valve, tothe extent he intial transaction cost ofthe
Investment approximates the price that a market participant
‘would be ing to pay to acquire asubsttute investment
‘on the measurement date, such cost may be considered

54 Rothstein Kass

56. Rothstein Kass

a

8.4 factor inthe valuation of ho investment. In making
ls aseossmont, managomont should consider whether
any signifiant change has occured between the initial
"transaction date andthe measurement date that might have
affected he value ofthe investment rom the perspective
‘ofa market partcpant locking to acquire the investment

‘on the measurement date, General, alter some period of
‘ine, the nal transaction cost becomes less reñabl as a
suitable reference value in the far valve measurement of an
Investment Hareturn-on investment analysis was prepared
at inception, management should re-ovalute it cash Bows,
Projections o detemine whether he actual ess forthe
pora rom incopton tough tho measurement dato rt
no nal omas, and to ide any igsicant changes
that would require a valuation acjustment to the ita
‘cost. Also, management should consider appving multiple
‘valuation techniques, including a market and income
‘approach, to detormine whether th values estimated under
front approaches corroborao th raorenco to ntl cost
6: suitable factor to consider inthe measurement fie
‘alo or whother other techniques provide more appropriate
vide of fair valuo rom the porspectie of amar
Paricpant onthe measurement dat.

Under ASC 620, can a fund value its imvestmentin a
Private operating company based on a recent sale
price in a related party transaction?

The price in a related party transaction may be used as
an putin far value measurement nero evidence that
‘he transaction was entered into at market terms arms
Jong”, owovor management should ensure that fair
‘alo I based onthe assumptions that market participants
‘would ui ping th asset er aby when acting in the
‘econoic best interest. When possible, management should
‘corroborate rps om related party ansactons win
market data rom transactions rom independent pares.

42. Fora private loan receivable, does ASC 820 require
an adjustment to the “air value” based on movements
interest rates for similar loans inthe marketplace
(even though the underbing credit ofthe borrower has
not deteriorated)?

Ves. the privat loan recevabl is a find rate or floating
rate loan and interest ratos fo similar loans have moved,

a markt participant would factor that movement into the
{air value ofthe privat loan. Ths poses challenges to
funds thet erignat loans when ther existing valuation
Poly is to general carry loans at par unless thee is à
defaut or mpaiment (which would require a rio down).
ASC 820 rouios that oso funds look 1 tho market to
00 what the cure lid ae for similar loans and just
tho cazyng vale ofthe loans to rt market participant
assumptions, Funds should also consider cotatra values
as part ofthe assumptions of expected recoveries for
loans nat are nonperorming

43. À fund holds an investment inthe common stock of a
private operating company which recently closed around
offinancing on ts preferred stock. The fund values ts
‘common stock investment at fair vas using abacksolve
method that estimates the implied equity value ofthe
invostoo entity based on the latest round of preferred
‘inancing. he und then allocates the estimated equity
value to each share cias using an option pricing model
‘that eats the common and preferred stock asa series of
all options en the enterprise value. What should the fund
consider to comply with the disclosure requirements of
ASC 820 eating to inputs and valuation techniques or
its common stock nvostment? |

Under ASC 820, the funds investment would quay
a6 à Love 3 invosimont in tho fair valve Morarchy, The
fund would bo required to disclose a description o ho
‘valuation technique and the significant inputs used in
‘the valuation, which may include a description ofthe
backsolve method (a market approach) the option pricing

Rothstein Kass 55

57. mod (an income approach, and the related inputs.
‘Tho fund would also be required to disclose quantitative
information about th significant unobserabe inputs
usedin th valuation. For nstance, the fund may include
table that its the significant inputs and values (or
rango of values) used inthe open pricing modo, such
as the risk free rata, the estimated stock volatity and

the estimated Iquidaton dates ofeach class of shares.
‘Tho fund would not be required to disclose quantitative
information on transaction-bated inputs such as th price
‘ol he protered stock rom the atest round of taancing
usodin the backsolve method since these inputs have
not been developed by management.

4. A private equity fund has concluded that itis
appropriate to record a contingent consideration
{rom the sale ofan investment in a private operating
company at far value. What isthe appropriate level
{designation forthe contingent consideration measured
tar value and which inputs would typically be most
significant in ts valuation?

‘Tho valuation of contingent consideration Feam-out
recevable”) typical rolas on unobservable inputs
estimated by management, which would resul in a Level 3
cassation andin the fund having to provide adational
quanttatve dsciosures of he significant unobservable
Inputs used inthe fa valve measurement. Certain cam
out receivables may be valved by apphing a discount
rate adjustment to contractual cashflows nat are edi
amount, ponding the achiovement o certain performance
targets. In such case, the quantitative tab of Level 3
Inputs would ypcaly include a disclosure ofthe discount
rato or range o rates) used in th valuation Te contract
vals ofthe cash los would not need to be disclosed
inthe quantitate table of Level input, as R would not
qualify as an input developed by management nother
cases, an earn-out recevable may be valued using an
‘expectod present valve technique, for instance when the
amount ofthe expected cashflows is expressed as a
utile of perfomance measures such as EBITDA or gross
revenue. such case n addition othe discount ate, the

ss.

quantitative table of Low Inputs woul tyicay include
a disclosure ofthe EBITDA or revenue multiple (or range
of mutiles) used in tho cas Now ostmatos. Uimatey,
the dsciosuro of significant Level inputs neds to bo
customized to reflect the specic characteristics ofthe
lation technique and inputs used in ho valuation

Is a fund required to include a disclosure of
{quantitative Inputs for investments in private equity
‘which are valued solely using the services ofa third»
party valuation expert?

‘Te fund's managements responsible forthe valuation
cf the fund's investments, which includes oversosing,
tho work of valuation specialists used 10 ait nthe
valuation, and challenging the assumptions and inputs
used. Inacalin, the und is responsible fr proving
Infomation regarding the investment othe valuation
enpartin order forthe expert to have a sufciont
understanding of he appropriate inputs and valuation
approach tobe used.

Essomialy the purpose ofthe quattabve input close
Isto prove tho financial statement users wih meaningful
Information which can be compared against ho user's
‘sumptions on von, aswel as to provide comparaiiy
ofthe assurptions ovr successive pods. To decision
outsource the valuation funcion des nt prectudo he
requirement to ince meaning closure o quantitative
Inputs wit the nancial statements.

À tund deoms the latest round of financing to be
representative of fair value for one of its private equity
investments, The fund also performs amodel-based
valuation as an additional step to corroborate the
reasonableness ofthe latest round of financing
however it relied solely onthe round of financing
‘without adjustment forthe valuation ofits investment
‘onthe measurement dato. Does the fund need to provide
disclosure of the quantitative inputs used for the
reasonableness test?

56 Rothstein Kass

58. Rothstein Kass

‘The dsciosure of quantitative inputs should rt the
‘valuatons based on intomaly devloped inputs at tho
mossurement dao. Wnde the fund considera th rule
‘ofthe model in evaluating the reasonableness of the
‘valuation, utimatly the valuation was fully weightod
based onthe price rom the latest round af financing,
‘which was not an input that was internal developed by
‘the fund. The fund is not required to present dechosue of
inputs used inthe model asthe resul was not weighted
into the tinal vakato.

Fair Value Hierarchy — Level 3
Considerations - Investments in Private
Investment Companies

47. A fund invests in a private investment company
which reports under IFAS. Can the fund measure its
investment at fair value using the imestee entity.
reported net asset value as a practical expedient?

Under ASC 820 tne practical expedient can ul be applied
o moasur the fa valuo ol investment nat por under
IFRS or other basis of accounting that ers trom the
provisions of ASC 946 Investment Companies under US.
‘GAAP. The fund, owever is requred to consider wheher
an adjustment 1 ne no asst valo of ho invosto erty
ls ocessary The bot of he adjustment o estimate
net asset valo for tr investment Pat is calculated Ina
manner consistent rh to mossurement principles of ASC
946 a 0 funds mansuromen dato. o adhstment
oui be considered a Level input Ihe adjustment as
significant Impact on tho valuation, t would resut the
investment boing classified as a Level in ho fair value
rare Inaction the fund shoud incide a quantitative
‘sclosue of he adjustment valueporcentage o ange

‘of alues/percentage fr mut investments) inthe
{octnotes ot financial statements

48. How does the probable sale of an investment in a.
private investment company for an amount other than
[NAV atoct the far value measurement ofthe investment
‘and tho use of NAV as a practical expedient?

{Under ASC 820 a funds not permitted to uso NAV as a
practical expedient when tis probable that the fund wil
all an investment at an amount eter than NAV. Asal is
considered probable onli al ofthe flowing enter have
‘been metas ofthe reporting funds measurement date:

+ Management, having the authatyto approve the action,
Commits oa plant sl he investment.

+ An active program to locate buyer and other actions
required to complet te plan o sol ie investment
ave boon natos.

+ The ivestmont avaiable for immediate sai subject
only to terme that aro usual and customary fr sales
‘of such investments for example arequiment to
‘obtain approval th sao rom th invests ora.
Puyers due digenco procedures).

+ Action required to complot the plan indicate tat
its unikel that signifeant changos to the plan wil
be made or that he plan wil be than.

litis probable atthe measurement date that a fund
Wi sean investment, ra portion ofan investmer
atan amount diferent rom NAY, the portion thatthe
{und intends to el shouldbe valued according to other
provisions of ASC 820. Other provisions of ASC 820 can
include a markt orincome based valuation approach.
‘Tne remaining portion ofthe investment that snot
probable of being sold may be valued by using NAV as

a practical expedient, However, ia fund enor into a
plant sl a group of investments, but the individual
Investments 10 bo sold have not yet boon identified, the
individual nvosiments wi continuo to quaKty fr the
practical expedant

Rothstein Kass 57

59. 49. When is it appropriate to designate an investment
ina private investment company as Level 2in the air
value hierarchy?

“The unt of account for an investment ina pete investment
‘company i the ownership intrest inthe under ing invetoo
fund tl fa other words, the investment being evaluated
isthe tinted parnorstip interest or tn offshore shares
Issued by tho underhing veste fund, not the underyng
investes funds investmants) When determining water the
investment wi be categorzad as Level 2 oF Lowel 3 within
‘the far vale hierarchy, the fund must consider tho fngih
‘ofimeremairing unl tho investment becomes redeemable,
‘slong as In ropeting fund has the contractual and
practical abilty to rodoom is investment ina private
investmont company atthe NAY in the naar term at he
mossurement dao, han he investment may bo classic.
as Lovel2 evn fa redemption notice was not submitted,
“Near tenn" a matter o profesiona judgment, and
historically has been defined by the FASB asa period ot
time not to exceed one yer rom the measurement dat,

A redamplon priod of 0 days or loss would key bo
‘considered near term since any potential discount relative
te the time value of money to the next redemption date
‘would not kel be considered a significant unobservable
input tis important to note that redemption period
0190 days rss should not automaticaly be doomed
near tem, Other facts and circumstances, such as the
Aelhood o actual poston of gates, andthe qui of
‘the nveste fund's portlo, should also be considered by
‘the reperting fund in detormining tho appropriate love of
is vestes entity within the hierarchy. nsituaions when
toro aro materia ajustmants to NAV to av at fair
‘alo, tho osu wil typically bo a Lov 3 designation,

50. What al value hierarchy level designation would à
fund assign to an investment ina private investment
company wen the private investment company has
a portion of ts investments held in a side-pocket?

“Tho far value hierarchy level designen for an investment
in a private investment company may be bifurcated
between the general class or liquid portion of the
investment and the sde-pocket portion ofthe investment
“Tho sie-pocket portion of the investment would generally
be classiiedin Levels and the general cass or qui class
may quality for Level 2 classification, The sde-pocket net
sot valo general determinable without incuring
significan undue cost and efor.

58 Rothstein Kass

60. Rothstein Kass

About the Authors

‚ettrey Schwartz, CPA, Is the practice leader fo he Financial Services practice of Rotstein Kass’ New
York tfc. Jo specializes In cvsing hedge funds, private equity funds and other types ol investment
parinershps on matters related to fund organizational structure, au, nancial reporting, tax and
‘operations. Jos also a member ofthe rm’ Financial Services Bost Practices Committo and a
frequent speaker at financial services conferences and seminars Hei a certied publ accountant
in New York and New Jersey and a member ofthe American Institute of Certified Public Accountants
(AICPA) andthe Now York State Society of Cerited Pubic Accountants (NYSSOPA,

‘Andrea Kallaras, CPA, i a Rothen Kass principal, locatedin the fms Roseland, New Jersey, office
‘Andrea provides aci, ganara! accounting and business consulting services fr privat and pubic
entities. Sho works wth domestic and international private equity funds, ventura capital funds, funds
ol funds and management companies. She has expertise In fl valuaion of deb, equity cuts,

private equity and venture capital investments, Andrea sa cartiied pubic accountant in New York
and New Jere.

Rich Sumida, CPA, isa senior rector based in Rothstein Kass’ Roseland, New Jersey, office. Asa
member of Rotuin Kass quality contol department, Rich i extensive} wold in the research and
consultation of complex accounting and auditing issue relevant t the fms cent practices, particular
win the aterative investment and broker-dealer industries. Rich is a crüfied publ accountant in
New York and New Jersey

John Barbagallo, CPA, a senior manager within the fimis Qualty Control group and isin charge of
tho Ins research and development and thought leadership nates. In those roles, John monitors
‘and analyzes current standard sating projects, activities and decisions o the FASB, IASB, and the SEC,
and provides comprehensive summaries, interpretations, webinars, and pres

members of the fm, John sacar publi accountant in Now York and Now Jersey.

Rothstein Kass 59

61. About the Authors (continued)

Antonella Puca, CPA, CFA, is senior managerin Rothstein Kass financia services group in Now York,
and a member of tho fms valuation group and Thought Leadership Commit, Antona provides
audi and consuting sance to hedge fund, prat equity and venture capital ns, and guidance on
‘valuation and the implomentaon of ASC 820 fr ateratve Investmont funds. Antonis a corte
Pub accountant in New York and Calfomia, a CFA Gharerhader and a member ofthe New York
Socioty of Sacuny Analysts,

Erik Edson, CPA, isan audit manager based in Rothstein Kass? Denver office. He works with both
Internationa and domestic hadgo funds, fund 0 funds, comodas and oter financial sonics cots.
Eskhas authore a numberof aries on US. GAAP and reguatory compllance matter in the aoratve
invostment industry fr various Rothstein Kass publications, and has boon actol not in Rothstoin
Kass thought leadership natos. Ekis a cored publi accountant in Colorado

About Rothstein Kass

Fothstein Kas isa premier professional services frm that has served privately held and publi traded companies as wo as
high-net worth individuals an famäcs, fr over 50 years, The m provides aut, tax and adsory services to clients including
hedge funds, funds of fund private guy. broker dealers and registered investment advisors. The Rothstein Kass Financial
Services Groups consistently rarked as op Service provider to the alternativo Investment industry. We aro expert inthe
fol, working with cents within the hedge fund industry to anticipate opportunites on he horizon as well as help thom to
respond to shor-orm compet chalenges

Beyond aut and tax entes, Rothstein Kass provides afl array of integrated services, including strategic business counselng,
regulatory complance and SEC adsery serves, insurance and sk management consulting ana family ce senvces.Rotnstin
Kass as offes in Calfomia, Colorado, Massachusetts, Now Jersey, New York, Texas and the Cayman stand

60 Rothstein Kass

62. Rothstein Kass

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New York, NY 10019
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