The International Private Equity & Venture Capital Valuation board today reiterates the applicability of the special guidance provided in March 2020 with respect to applying the IPEV Valuation guidelines when estimating fair value at 31 December 2020.
As a board, we continue to be concerned for those individuals impacted by the global COVID-19 pandemic, physically, emotionally and economically.
The alternative asset industry closes out 2020 having assisted numerous investee companies weather the COVID-19 induced economic storm, saving jobs, providing needed goods and services, and supporting investors. The recent resurgence of COVID-19 cases is very concerning, while the likely near-term availability of a vaccine is encouraging.
As asset managers report to their investors at 31 December 2020, they are cognizant that their investors continue to need timely, relevant and reliable information with respect to the fair value, performance and financial condition of underlying investments. Limited Partners (LPs) need to know the fair value of their limited partnership interests to make asset allocation decisions, to allow beneficiaries to make investment decisions, to exercise their fiduciary duty and for their own financial reporting requirements. Therefore, LPs have a critical need at each quarter end, especially 31 December 2020, for their fund managers (GPs) to rigorously report underlying investments at fair value.
The special guidance we provided in March 2020 continues to be relevant. The key question that fair value measurement seeks to answer is: what price would an informed buyer pay, in and orderly transaction, for the investment at the measurement date (in this case at 31 December 2020)? Answering this question requires judgement, especially given the elevated state of public markets. It would be anticipated that a potential buyer would exercise prudence when determining the price they would pay. Depending on the facts and circumstances, a buyer at 31 December 2020 may or may not pay the elevated multiples indicated by publicly traded comparable companies and may find it challenging to determine which metric (trailing, forward looking, etc.) to use. Therefore, public company multiples may need to be adjusted to reflect differences in terms of COVID-19 impact, operational performance and other adjustments to reflect market participant perspectives. As we stated in our March 2020 special guidance and as articulated in section 3.4 of the IPEV Valuation Guidelines:
We reaffirm that fair value is the best measure of valuing private equity portfolio companies and investments in private equity funds. Fair value judgements undertaken at 31 December 2020 will continue to require the application of informed judgment. Applying the IPEV Valuation Guidelines with rigor and staying true to the principles of fair value will allow managers and valuers to rise to the challenge and extend the track record of providing investors with decision useful transparent information.
The March 2020 special valuation guidance is available here.
Notes to editors
1. The IPEV Board and Valuation Guidelines
The mission of the IPEV Board is to provide high quality, uniform, globally acceptable, best practice guidance for private capital valuation purposes.
The IPEV Board was created as an independent body in 2005 and is responsible for maintaining, promoting, monitoring and updating the IPEV Valuation Guidelines. The Board has an advisory role and gives guidance on the application of the Guidelines to all stakeholders in the private equity and venture capital industry including practitioners, investors, regulators and auditors. More information about the IPEV Board can be found here.
2. IPEV Valuation Guidelines – Special guidance, 31 March 2020
The special valuation guidance for valuations prepared as at 31 March 2020 is available here.
3. Contact details
For further information, please email Paul Cunningham, IPEV Board Chair at [email protected].