The current geopolitical and macroeconomic environment has raised questions as to the impact on estimating the fair value of private investments at March 31, 2022. The International Private Equity & Venture Capital Valuation board today reiterates the special guidance provided in March 2020 with respect to applying the IPEV Valuation guidelines (www.privateequityvaluation.com) when estimating fair value at 31 March 2022. As a board, we are very concerned with the tragic loss of human life and ongoing impacts resulting from the war in Ukraine.
Given the unprecedented nature, in recent times, of the current macro environment, the IPEV Board would like to reinforce certain considerations for valuing alternative investments at this point in time. When considering the IPEV Valuation guidelines themselves, and the 31 March 2020 special guidance, particular consideration should be given to:
1. Reduction in future profits due to the withdrawal of the investee company from a specific region.
2. The impact of sanctions directly and indirectly on investee companies.
3. The impact of the significant increases in commodity, raw material and energy prices; and potential supply chain shortages on the performance of investee companies.
4. The impact of inflation, whether it can be considered transitory, and the investee company’s ability to maintain its historic level of margins.
5. Liquidity position of the investee company.
6. Counterparty risk including the ability for insurance claims, as applicable to be paid out.
7. Alternative markets or methodologies for listed securities where trading has been suspended, potentially indefinitely.
The above list of considerations is not considered all-inclusive but is highlighted to reinforce the need to exercise informed judgment, identifying the impact of current market conditions when estimating fair value in times of increased uncertainty, such as these.
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. Contact details
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