How to valuations
26.11.2024 – Articles
In the first three quarters of 2022, the S&P 500 declined by 25%, while private assets remained relatively stable, declining by just 5% according to Burgiss. The divergence between public and private valuations unsurprisingly raised a few eyebrows, with both LPs and regulators concerned over the integrity of private valuations, as well as perceptions of undue GP influence on asset pricing.
Against this backdrop, in March 2024 the FCA began a multi-firm review into the quality and independence of private market valuation practices to protect the interests of investors.
The big picture
Private market valuations are based on a selection of methodologies, aligned with specific strategies and asset classes. They commonly assess factors including financial performance, comparable company analyses, market conditions and assets’ intrinsic values.
Responsibility for a valuation’s accuracy and integrity rests with a funds’ AIFM. They are obliged to oversee both internal and external valuation processes. Alongside key governance figures at firms, AIFMs ensure that any deviations from conventional valuation methodologies are justified, approved and made transparent.