COVID-19 is first and foremost a public health emergency. At the same time, it is leading to an extended period of economic downturn and profound disruption to established business and financial systems. For asset managers and investors, this is bringing significant challenge and uncertainty when finalising carrying values for portfolio investments.
The “shelf life” of valuations has decreased
Current economic volatility has lessened the shelf life of valuations and increased the demands for more frequent views on value.
Portfolio investment valuation is no longer just a year end concern, but is increasingly being considered through full quarterly valuation cycles in order to ensure investors in alternative assets are provided with timely valuations reflecting current economic conditions.
Increased scrutiny over financial reporting
Regulator scrutiny over auditing practices has resulted in the need for greater fair value documentation and independence.
Increased holdings of complex and/or illiquid investments to meet return requirements
The unobservable inputs that underpin the fair value calculations for complex and illiquid investments have become focal points for outside scrutiny.
Increased market volatility has brought even greater challenges in valuing illiquid assets.
The importance of independence in investment valuations
Valuation impacts a stakeholder assessment of fund performance, entry/exit, and the accuracy of their financial reporting.
The updated International Private Equity and Venture Capital (IPEV) Valuation Guidelines emphasise, as best practice, the use of independent internal valuation committees and/or external advisers to review valuation methodologies, significant inputs, and fair value estimates for reasonableness.
