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Rothschild & Co | Annual Report 2017
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1. Overview
4. Financial statements
3.
Management report
2. Business review
4 Selected controls in the valuation process
Merchant Banking
The calculation of fair value is subject to control procedures aimed at verifying that fair values are determined or validated by an independent function.
Fair values determined by reference to external quoted prices or market parameters are validated by the relevant fund’s valuation committee.
These committees review, twice a year, the valuation of the investments made by Merchant Banking.
The parameters of valuation that are reviewed in committee include the following:
• the origin of the external source;
• the consistency of the various sources;
• the events that took place during the period which could affect the value; and
• the frequency with which the data are updated.
Merchant banking funds are valued by their management companies in accordance with the international private equity and venture capital valuation
(IPEV) guidelines developed by the
Association Française des Investisseurs en Capital
(AFIC), the British Venture Capital Association (BVCA) and the
European Private Equity and Venture Capital Association (EVCA). Dedicated advisory committees exist to approve half-yearly investment valuations, which
are sent to investors in the Group’s merchant banking funds. As such, these committees act as the valuation committees under the Alternative Investment
Fund Managers Directive (AIFMD) requirements.
Valuation of derivatives
The Group’s OTC (i.e. non-exchange traded) derivatives are valued using external valuation models. These models calculate the present value of expected
future cash flows. The Group’s derivative products are of a “vanilla” nature, such as interest rate swaps and cross-currency swaps; for these, the modelling
techniques used are standard across the industry. Inputs to the valuation models are determined from observable market data, including prices available
from exchanges, dealers, brokers or providers of consensus pricing.
Exchange traded derivatives are valued by the exchange on which they are traded, which asks for margin calls depending on the value.
V Notes to the balance sheet
Note 1 – Financial instruments at fair value through profit or loss
Financial assets
In thousands of euro
31/12/2017 31/03/2017
Equities
467,178
382,327
Loans to customers
32,859
11,513
Financial assets designated at fair value through profit or loss
500,037
393,840
Equities
30,598
17,077
Trading instruments
30,598
17,077
Trading derivative assets (see note 2)
17,379
21,524
TOTAL
548,014
432,441
Financial liabilities
In thousands of euro
31/12/2017 31/03/2017
Trading derivative liabilities (see note 2)
24,823
33,329
TOTAL
24,823
33,329