Portfolio Valuations

Short Description: 
Our valuations of illiquid investments are performed in accordance with ASC 820.

The increasing importance placed by authoritative accounting bodies on fair value has reinforced the need to arrive at fair value that is consistent with generally accepted accounting principles. Valuation challenges are particularly acute for illiquid securities. Historically, many illiquid investments have been valued at cost or written up based upon an event such as the latest round of financing. Write-downs were usually driven only by impairment or a down round of financing.

Today, such a limited approach is incompatible with the concept of fair value. With the issuance of Accounting Standards Codification (ASC) 820 (formerly SFAS No. 157), in 2007, new guidance for the measurement of fair value was established. ASC 820 also includes clarifications to the definition of fair value. Increased volatility in financial markets combined with reduced liquidity has focused attention on the role of current market conditions on fair value. Yet by their very nature, illiquid securities may have important differences and features that need to be properly understood in the determination of fair value.

Our valuations of illiquid investments are performed in accordance with ASC 820. Engaging a third party to perform valuations of illiquid investments is recommended for the following reasons:

• Results in a more robust valuation policy and conforms to best practices
• Provides the Board of Directors with another input into its determination of fair value
• Independence
• Greater consistency and transparency
• Fulfillment of lender requirements for securities-based lending
• Experience in the application of required valuation framework and with illiquid securities

For more information, contact John Czapla or Parag Patel.