The SEC has started to to investigate whether or not mutual funds have the proper procedures in place to value private investments. The scrutiny comes as big money managers have been loading up on shares of private companies. Fidelity T.Rowe Price, and BlackRock are some of the biggest mutual fund managers that are investing in these private companies.
Startup shares are “not traded on an exchange, so a market quote is not readily available,” said Jay Baris, a partner and chair of the law firm Morrison & Foerster’s investment-management practice. “The question is, how do you put a fair value on it when you’re looking at squishy data?” Accurate pricing of securities is fundamental to the mutual-fund business, and millions of investors rely on precise valuations to figure out how much their holdings are worth. Fidelity Investments, T. Rowe Price Group Inc. and BlackRock Inc. are among the biggest money managers investing in private tech companies.