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There are three companies: A, B and C.
A fully belongs to B, B fully belongs to C and C fully belongs to A.

Company A has USD 1 mln of cash and no debt.
Company B and C each have USD 10 mln of cash and no debt.

These companies are registered in different jurisdictions, so that regulators couldn't prevent this circle from happening.

My problem is that when I try find their valuation, every iteration the value of those companies increases and doesn't ever converge. What am I missing?

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  • $\begingroup$ Is this even allowed? I mean there are rules that enforce a minimum diversification? $\endgroup$
    – T123
    Apr 10 at 15:04
  • $\begingroup$ Alright, let's diversify it a bit: three funds, each belong to the others at 50%. First has 1 M USD cash, second and third have 10M USD cash. I've updated the question. $\endgroup$ Apr 10 at 15:07
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    $\begingroup$ That sounds better, however, one general remark. Under UCITS you have the concept of eligible assets. Investing assets of a fund into another fund is conditional on the look-through principle. I think if you construct a case with A owns B and B owns C and C owns A, this could be used as money making machine to blow up your AUM otherwise...this, these circles are not allowed as by looking through the funds, you are buying your own shares.. $\endgroup$
    – T123
    Apr 10 at 15:16
  • $\begingroup$ If you have these as say companies, then with 50%shares in each you need to apply some sort of multiplicator to determine your effective share in them I guess. But I'm no expert in this 😉 $\endgroup$
    – T123
    Apr 10 at 15:18
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    $\begingroup$ For what purpose are you valuing the companies? Accounting or pricing? If pricing, you can add the values of the 3 separate entities ignoring their ownership in each other. For accounting, maybe better to ask an accountant, the answer may depend on jurisdiction. $\endgroup$
    – Bob Jansen
    Apr 10 at 16:38

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