Added scrutiny on valuation for private equity (PE) firms is likely here to stay. PE asset managers across the board are getting pressure from limited partners, investors, fund boards of directors, auditors and regulators. Establishing a formal process, creating a governance mechanismĀ and focusing on documentation are best practices to avoid costly regulatory issues or litigation.

Valuation challenges are particularly acute for PE investments and other illiquid securities. It is critical that PE fund managers have an understanding of fair value requirements and ASC 820 in order to prepare for the inevitable audit and regulatory scrutiny, which VRC finds often focuses on:

  • Valuation techniques and inputs for Level 2 and Level 3 measurements
  • Quantitative information about significant unobservable inputs used for Level 3 measurements, including sensitivity to changes in unobservable inputs
  • Description of valuation processes

These and other top-levelĀ items require an increased documentation, resulting in more PE firms reviewing internal processes and controls and bringing in third-party valuation partners. Valuations of PE investments, however, are quite complex. Experienced judgment beyond modeling is necessary to ensure that valuation conclusions make sense.

VRC also works closely with PE firm general partners to value carried interest for estate planning purposes, which delivers PE executives significant tax savings opportunities.

We apply industry best practices and our vast experience to provide an independent point of view that results in acceptable, defensible and transparent valuation conclusions. VRC delivers supportable valuations that can withstand scrutiny from auditors, the SEC and other regulatory bodies.