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The impact of COVID-19 on private equity valuations and special guidance issued by the International Private Equity & Venture Capital Valuation (‘IPEV’) Board have had broad implications on asset managers valuing their investments. How have asset managers responded and where does it go from here?
In March 2020 the IPEV Board issued special guidance in estimating fair value at valuation date in these unprecedented times. Key highlights from this guidance were:
Since issuing the March 2020 guidance, asset managers were challenged by the limited amount of data available, the volatility in the public markets and the sudden decrease in activity within the private equity sector. In practice, we found that asset managers embraced these guidelines to support their valuation methodology, the significant level of judgements applied to assumptions and the use of various calibration techniques to ‘sense-check’ their valuations.
Fast forward nine months and the IPEV Board issued further guidance in terms of 31 December 2020 fair value estimates, where they confirmed that:
In practice, asset managers are considering the following to support their 31 December 2020 valuations:
The challenges during 2020 have not gone away, however the increased activity within the private equity sector is reducing the level of uncertainty around private equity valuations when compared to those private equity valuations performed in March 2020.
Asset managers should remain cautious in assessing the integrity of the information used in the valuation model and calibration testing remains vital in supporting private equity valuations for the foreseeable future.
Both the special guidance issued in March 2020 and December 2020 remain particularly relevant to asset managers conducting private equity valuations for future reporting periods.
For more information or to discuss further insights in the investment management and private equity sector In the Channel Islands please contact either of the key contacts below.
Theo is a partner in our Jersey practice leading our offerings to the Private Equity and Asset Servicing sectors and acts as the lead audit partner for our most significant audit clients. Theo works with a number of JFSC and FCA regulated firms and in addition to being their auditor has assisted them with compliance and controls reviews as well assessing the impact of regulatory change on their business.
Nic is a senior manager in our Jersey office. He has over 13 years of financial services experience in the Channel Islands, United Kingdom and South Africa. He is one of our Private Equity specialist, where he leads the sector group identifying the latest trends and developments in the market, allowing him to bring the latest insights to his clients.