Partnership Valuations Inc., an independent appraiser of limited partnerships, will soon unveil a new service that offers banks and other institutions immediate access to detailed information on more than 5,500 limited partnerships.
The service provides operations, trust management, and compliance personnel information on assets, fair market value, and valuation date.
It helps banks that hold partnerships comply with the Office of the Comptroller of the Currency's Regulation 9, which requires trust departments to review all assets at least once a year.
"Our service will help banks solve the problem of how to price these securities," said Brad Davidson, who formed Partnership Valuations in 1990.
With over 100,000 limited partnerships in existence, these securities were popular tax-sheltering investments until the Tax Reform Act of 1986.
They typically do not trade on any exchange and are therefore hard to price accurately. The service saves institutions from going through such expenses as obtaining financial statements and partnership agreements to price a partnership, Mr. Davidson said.
Instead, customers can use the service to access the information in the appraiser's reference library.
"Until now, it's been a Stone Age activity," said Mr. Davidson; president of the Annapolis, Md.-based company. "PVI's reference library is now as close as your fax machine."
Constant research and analysis on partnerships led Mr. Davidson to the conclusion that these investments today are often misvalued.
He said that fully 30% of all partnerships are worthless, and another 60% have values greater than zero but less than the amount invested.
"There is a very strong probability that partnerships held in any trust account are worth less than their costs, and that's bad news for banks who have to carry those costs," Mr. Davidson said.
But Doug Bajor, vice president of the private banking department with Comerica Inc., said, "Many times, people will value them at original costs. Even though there is a secondary market, they were never intended to be traded, so there will be great differences in how they are valued."
Mr. Bajor added that Comerica, a $27 billion-asset bank based in Detroit, was evaluating the new service.
"It has the potential to be a good product," Mr. Bajor remark. ed. "I don't know of anyone else providing it."
Using passwords for access to Private Valuations' computer, customers will key in using a partnership's tax ID number. Customers then receive reports in one of two formats.
The first format, called Pricing Tapes, is a report that includes the partnership's name, fair market value, and valuation date.
Additionally, through an arrangement with Standard & Poor's CUSIP Bureau, partnerships that the company has valuated are assigned actual CUSIP numbers regardless of the partnership's size.
Mr. Davidson believed the CUSIP number, the nine-digit identifier of U.S. securities, justified the cost of the report since fewer than 2,000 of the 100,000 partnerships actually have those numbers.
"We've agreed to pay a certain percentage of revenues for S&P to assign them," Mr. Davidson said.
The other format, Fax-ondemand, is a service that allows bank officials to get more detailed information.
The reports can be delivered automatically to either a fax machine or PC.
The system uses Novell networking software, a Lotus Notes groupware package, and a customized version of Phone Notes. The system automatically faxes or sends reports by modem into a PC.
Charges per report are $100 for the 2,600 public partnerships, and $200 for private partnerships.
There is a one-time fee of between $500 and $700 to set up coverage of a new partnership.
