Fair Value Measurements

6 Months Ended

Jun. 30, 2019

4.Fair Value Measurements

Fund’s Investments. The Fund values its investment in the Master Fund at fair value and is represented by the Fund’s proportionate interest in the member’s capital of the Master Fund.

Fund’s and Master Fund’s Fair Value Measurements. FASB Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements” (“ASC 820”), defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Valuation techniques, as specified by ASC 820, are used to measure fair value.

All financial instruments at fair value are categorized into one of three fair value hierarchy levels, based upon the lowest level input that is significant to the financial instrument’s fair value measurement in its entirety:

Level 1—Quoted market prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Valuation techniques for which all significant inputs are market observable, either directly or indirectly.

Level 3—Valuation techniques which include significant inputs that are not based on observable market data.

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which introduces new fair value disclosure requirements as well as eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 would be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Fund early adopted ASU 2018-13 effective December 31, 2018. The impact of the Fund's adoption was limited to changes in the Fund's financial statement disclosures regarding fair value, primarily those disclosures related to transfers between levels of the fair value hierarchy.

U.S. GAAP provides guidance in determining whether there has been a significant decrease in the volume and level of activity for an asset or liability when compared with normal market activity for such asset or liability (or similar assets or liabilities). U.S. GAAP also provides guidance on identifying circumstances that indicate a transaction with regards to such an asset or liability is not orderly. In its consideration, the Master Fund must consider inputs and valuation techniques used for each class of assets and liabilities. Judgment is used to determine the appropriate classes of assets and liabilities for which disclosures about fair value measurements are provided.

Fair value measurement disclosure for each class of assets and liabilities requires greater disaggregation than the Master Fund’s line items in the Statement of Financial Condition. The Master Fund determines the appropriate classes for those disclosures on the basis of the nature and risks of the assets and liabilities and their classification in the fair value hierarchy (i.e., Level 1, Level 2, and Level 3).

For assets and liabilities measured at fair value on a recurring basis during the period, the Master Fund provides quantitative disclosures about the fair value measurements separately for each class of assets and liabilities, as well as a reconciliation of beginning and ending balances of Level 3 assets and liabilities broken down by class.

The Master Fund considers prices for exchange-traded commodity futures, forwards and options contracts to be based on unadjusted quoted prices in active markets for identical assets (Level 1). The values of U.S. Treasury bills, non-exchange-traded forward, swap and certain options contracts for which market quotations are not readily available are priced by broker-dealers who derive fair values for those assets from observable inputs (Level 2) and for those contracts that are priced using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3). As of and for the periods ended June 30, 2019 and December 31, 2018, the Master Fund did not hold any derivative instruments for which market quotations are not readily available and which are priced by broker-dealers who derive fair values for these assets from observable inputs (Level 2) or that are priced at fair value using unobservable inputs through the application of management’s assumptions and internal valuation pricing models (Level 3).

The following is a summary of the Master Fund’s investments at fair value. The inputs or methodology used for valuing derivative instruments are not necessarily an indication of the risk associated with investing in those derivative instruments.

ASSET TABLE (Unaudited)


	Total Fair Value at
Description	June 30, 2019		Level 1		Level 2		Level 3
Future Contracts	$	6,230,594	$	6,230,594	$	—	$	—
U.S. Treasury bills		104,725,358		—		104,725,358		—
Total Assets	$	110,955,952	$	6,230,594	$	104,725,358	$	—

LIABILITIES TABLE (Unaudited)


	Total Fair Value at
Description	June 30, 2019		Level 1		Level 2		Level 3
Future Contracts	$	3,287,320	$	3,287,320	$	—	$	—
Total Liabilities	$	3,287,320	$	3,287,320	$	—	$	—
Net Assets and (Liabilities)	$	107,668,632	$	2,943,274	$	104,725,358	$	—

ASSET TABLE


	Total Fair Value at
Description	December 31, 2018		Level 1		Level 2		Level 3
Futures Contracts	$	5,914,315	$	5,914,315	$	—	$	—
Total Assets	$	5,914,315	$	5,914,315	$	—	$	—

LIABILITIES TABLE


	Total Fair Value at
Description	December 31, 2018		Level 1		Level 2		Level 3
Future Contracts	$	9,900,245	$	9,900,245	$	—	$	—
Total Liabilities	$	9,900,245	$	9,900,245	$	—	$	—
Net Assets and (Liabilities)	$	(3,985,930)	$	(3,985,930)	$	—	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Cavendish Futures Fund LLC 10-Q