The International Private Equity and Venture Capital Valuation Guidelines Board (IPEV Board) has published draft amendments to the International Private Equity and Venture Capital Valuation Guidelines for consultation.
The IPEV Valuation Guidelines are reviewed periodically by the IPEV Board to ensure they continue to promote best practice when valuing investments and to incorporate changes to accounting standards. The Valuation Guidelines were last updated in 2015 and this year’s update reflects the continued experience of industry practitioners applying IFRS 13 and ASC Topic 820 (US GAAP), as well as incorporating other valuation guidance such as that reflected in the working draft of the American Institute of Certified Public Accountants Private Equity and Venture Capital Valuations Guide.
Key enhancements include:
• Price of a Recent Investment removed as a Valuation Technique to reinforce the premise that Fair Value must be estimated at each Measurement Date
• Valuing Debt as an Investment expanded
• To prevent misunderstanding and highlight applicability to various types of private Investments in Debt and Equity by various types of Investment Companies/Entities the term ‘private equity’ was replaced with the term ‘Private Capital’
• For better readability and to eliminate confusion, Section I: Valuation Guidelines was moved to Appendix 1. Section I of the 2018 edition of the Valuation Guidelines presents the Valuation Guidelines, boxed and shaded, with explanatory comments. Appendix 1 presents the Valuation Guidelines without explanatory comments.
The Board would like input as to whether this format is better or if another format would enhance usability.
Paul Cunningham, IPEV Board Chair, says: “The Board understands its responsibility to provide Valuation Guidelines consistent with accounting standards in an effort to assist both GPs and LPs in establishing fair value estimates which are consistent, relevant and reliable. Establishing the fair value of private equity and venture capital investments requires the exercise of informed judgement. The IPEV Valuations Guidelines, which are required by many fund agreements, continue to provide managers and investors with a source of practical and principles-based fair value guidance. The draft amendments reflect the IPEV Board’s accumulated experience of valuing alternative investments and continuing developments in the alternative asset industry. We welcome feedback from practitioners and investors alike to ensure the Guidelines remain a valuable resource for the industry.”
Karin Lagerlund, IPEV Board member, says: “Limited Partners need their General Partners to provide robust estimates of Fair Value, consistent with accounting standards. Applying the IPEV Valuation Guidelines helps GPs demonstrate to LPs the rigour applied in estimating Fair Value. The expansion of guidance on determining the fair value of debt investments is in response to the needs of Investors and the fact that accounting standards require that debt investments of Investment Entities/Investment Companies be measured at fair value.”
