On December 11, 2025, the American Society of Appraisers (ASA) hosted its 2025 Winter Fair Value Conference, co-chaired by VRC’s Adam Smith. The conference brought together leading industry experts to examine emerging issues and evolving practices shaping the future of fair value measurement. Here are highlights from the discussions.

Artificial Intelligence (AI) in Valuation

Panelists emphasized the rapid evolution and potential of AI in valuation. Today, valuation firms use AI to boost efficiency in research, document scans, and mathematical checks. However, AI still requires significant development before it can reliably produce valuations. Transparency remains critical, particularly with respect to how AI tools are used and how client data is managed.

Challenges in Valuing Tranche Rights

Tranche preferred financing is a funding structure where preferred stock is issued in multiple stages (tranches) rather than all at once. A tranche can be released immediately or upon achieving a specific milestone (such as regulatory approval or a revenue target). For companies, this structure provides immediate access to capital and mitigates fundraising uncertainty as future tranches are secured, assuming conditions are met. This structure benefits companies by reducing fundraising uncertainty and investors by limiting initial exposures. While increasingly common in biotech and early-stage ventures, tranche preferred structures remain a niche subset of the preferred market. Traditional models (OPM, PWERM, Monte Carlo simulation) can overlook factors such as optionality and contingent dilution, milestone contingent capital structures, fair value allocation among securities, and developing estimates of volatility, milestone probability, and time-to-event. Accurate valuation will be complex and require a clear understanding of the legal terms and milestone definitions.

Fossil Fuel and Renewable Valuations

Panelists reviewed industry-specific provisions of the One Big Beautiful Bill Act and regulatory challenges, including royalty rates and lease sales. They noted that industry consolidation continues, reviewing recent M&A activity and EBITDAx multiples by asset type. Discussions also covered the cost of capital and discount rates in select markets, as well as AI-driven data center demand on energy storage capacity.

Practical Issues in Debt Valuation

This session started with the basics of debt security valuation and then moved on to real-world challenges, such as calibration. Emerging topics included the growth in private credit and the rise of “amend and extend” restructurings.

Valuation Guide Updates

The Appraisal Foundation regularly publishes Valuations in Financial Reporting (VFR) Advisories to promote best practices and consistent valuation methods and techniques. During the sessions, members from the Business Valuation Resource Panel working groups offered a sneak peek at two highly anticipated projects, with exposure drafts slated for public comment in 2026.

a. Company Specific Risk Premium (CSRP)
Valuation experts add a CSRP (alpha, additional risk premium) to the discount rate for risks not included in other components. A CSRP is often added to the cost of equity component in the weighted average cost of capital (WACC) calculation. There is currently diversity in practice in what the risk premium should account for and how to quantify it, and existing literature lacks specific guidance. The forthcoming exposure draft will provide structured approaches for identifying and quantifying company-specific risks with a focus on academic research that supports the existence of the CSRP.

b. Intangible Asset Discount Rates (IADR)
There is currently diversity in practice on the development and selection of appropriate IADRs in valuations used for financial reporting purposes, including business combinations, asset acquisitions, fresh start reporting, and impairment testing. Panelists, including VRC’s Charles Sapnas, reviewed key concepts from the upcoming exposure draft.

• Rules of thumb may not work. Common shortcuts like WACC+ premium may not apply in all situations.

• Tailor rates to each asset. Avoid applying a single entity-level rate to all intangible assets, instead develop discount rates that reflect each intangible asset’s risk profile and associated cash flows. The advisory will include multiple practical examples.

• Check for consistency. Calculate the Total Intangible Asset Discount Rate as a benchmark to ensure logical consistency across individual asset discount rates.

• Use a structured approach. Base analysis on asset characteristics, market data, and risk factors.

How VRC Can Help

The topics discussed at the ASA 2025 Winter Fair Value Conference underscore the increasing complexity of fair value measurement, particularly as valuation professional navigate emerging technologies, evolving capital structures, and heightened scrutiny around assumptions and methodologies.

VRC works with private market investors, financial sponsors, and other organizations to address these challenges across a wide range of valuation needs, including financial reporting, transaction support, portfolio valuation, and complex securities. Our professionals actively participate in industry working groups and standard-setting discussions, helping clients stay aligned with best practices as guidance continues to evolve.

If you have questions about any of the topics discussed above or would like to explore how these developments may affect your valuation processes, we welcome you to contact Adam Smith, Charles Sapnas, or another VRC professional.