The value is a claim until it is governed

Graduate · enrolled learners

This lesson opens with Abraaj Group, 2018.

What happened

Abraaj was one of the largest private-equity firms in emerging markets, managing on the order of 14 billion dollars, and it collapsed in 2018 after investors, including a major foundation, began asking what had happened to money in one of its funds. Investigations found that Abraaj had commingled and misused fund money, drawing on it to cover the firm's own shortfalls, and had misrepresented the value and performance of its holdings, the net asset value that told investors what their stakes were worth. Crucially, those valuations were governed by Abraaj itself, with insufficient independent check, so the numbers investors relied on were the firm's own claims about assets the firm controlled. The claims were not true, and when the questions could no longer be deflected the firm unravelled, with hundreds of millions of dollars found to have been misappropriated and its founder later facing charges. The value investors trusted was a claim made by the party that benefited from the number being high, and no independent governance stood between the claim and the truth.

The decision point

A reported value, the net asset value of a fund, the mark on an asset, the price of a tokenized claim, is a claim about what something is worth, and a claim is only as reliable as the governance over who makes it and how. The decisive question is independence: when the party that benefits from the value being high is also the party that determines the value, the number serves the beneficiary, not the truth, so it drifts toward what is convenient rather than what is real. Abraaj is the case: it governed its own valuations, benefited from them being high, and inflated them until the firm collapsed, because there was no independent governance between the claim and reality. For a tokenized real-world asset, the value, the NAV, the mark, the oracle price, is exactly such a claim, and it is trustworthy only to the degree its governance is independent of the party that gains from it. So the decision when structuring or holding a tokenized asset is to require that valuation be governed by someone whose interest is separate from the value being high, an independent valuer, administrator, or verifier, because a value governed by its beneficiary is a claim in the beneficiary's favor, and Abraaj is what that claim is worth when it is finally tested against reality: hundreds of millions less than reported.

Recorded loss

$385,000,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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