After getting a handle on the formula, Duff & Phelps attempts to determine the spreads on illiquid auction-rate shares by looking at trading in the comparable securities. The most challenging piece of the valuation puzzle, though, is determining how long the shares will be outstanding, Grant said. Perpetual preferred shares, for example, have no fixed maturity date.
"Early on, we were trying to gauge what the response was likely to be from various issuers," he said. "We did not think these things would be outstanding forever, but at this point, you might say we got it closer for BlackRock than we did for Oppenheimer. You have to have some sort of life expectancy in order to come up with some sort of value."
BlackRock has redeemed many of its clients' auction-rate shares using tender option bonds and other vehicles. Oppenheimer said recently that it's continuing to explore options to help its clients liquidate their holdings.
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