Private Equity Funds

You work in the accounting department of an investment management firm and a portfolio manager has asked for your advice on estimating the fair values of the following asset classes

1. Common Stocks
2. Bonds
3. Real Estate
   4.Timber Investments which receive cash flow from the sales of timber
   5.Private Equity Funds
4. liquid asset-backed securities

Discuss what advice you would provide the portfolio manager on estimating the fair values of each of the above asset classes including how you would characterize the inputs you identify as Level 1, Level 2 or Level 3 assets. (Modified from Wahlen et al. 9th edition).
response needs to be (150 – 200 words).

2nd part (continuation of first part)…M3D2

After reading through your discussion the portfolio manager emails you the following note:

“Thanks for your input regarding estimating the value of the various asset classes. I have been examining the goodwill balance of one of the companies in my value index portfolio and I noticed that as the creditworthiness of the company improved the earnings of the company decreased and asset values decreased due to fair value accounting and changes in goodwill. I don’t understand how this would happen”. Write a response to the portfolio manager discussing the relationship between fair value accounting and changes in goodwill and asset values and corporate earnings.

Sample Solution