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SD-08.3 — Private-Asset Valuation

Business Domain: BD-08 Valuation & Pricing (Middle office) · Applies: PRIV

Purpose

Determines and reviews the fair value of holdings in private equity, private credit, real assets and infrastructure — assets with no market price and no daily quote, valued periodically on an estimate of what they would fetch in an orderly transaction. SD-08.3 is the capability for the hardest valuation problem the firm faces: a value that is an opinion, formed quarterly, on an asset that does not trade. For an LP allocator it is largely the review and challenge of the GP’s reported mark; for a direct investor it is the production of the mark itself. SD-08.3 is not the modelling of liquid instruments — that is SD-08.2, which builds a value from market data — and it is not the GP-mark monitoring done as part of manager oversight (SD-03.6); SD-08.3 owns the firm’s own fair-value conclusion for the private holding.

Service Operations

  • Run the periodic valuation cycle — value the private holdings on the quarterly, or other periodic, cycle the asset class works on, on a consistent fair-value basis.
  • Challenge the GP / sponsor mark — for fund and co-investment holdings, review the general partner’s reported valuation, test its assumptions, and challenge marks that look stale, optimistic or inconsistent.
  • Apply the valuation methodologies — income (discounted cash flow), market (comparable-company and transaction multiples) and cost / recent-transaction approaches, selected by asset and stage.
  • Coordinate third-party valuers — commission and review independent valuations from external valuers and appraisers — a real-estate appraisal, an infrastructure valuation, a timberland or farmland natural-resource appraisal — and reconcile them to the firm’s view.
  • Back-test marks against realised exits — compare carrying valuations against the prices actually realised on exit, and feed the variance back into the valuation discipline — the IPEV back-testing recommendation.
  • Document the valuation judgement — record the methodology, the inputs, the comparables and the reasoning, so a Level 3 mark is defensible to auditors and the pricing committee.

Inputs and outputs

  • Inputs: GP capital-account statements and reported valuations, via SD-03 and SD-12.8; portfolio-company and asset financials; market comparables and transaction data; third-party valuation reports; the valuation policy from SD-08.4.
  • Outputs: reviewed private-asset fair values with their methodology and evidence — recorded as Valuation (E-07), consumed by SD-12.9 Fund Accounting & NAV, BD-09 (private-market performance and PME), BD-07 (private-markets risk) and SD-08.4, the pricing committee.

Entities

  • Consumes: E-04 Holding / Position (book = ibor for the live holding being valued), E-02 Instrument / Asset, the private-markets entities PM-09 Fund Investment and PM-06 LP Commitment, and E-03 Portfolio / Mandate; the SD-08.4 valuation policy; GP capital-account statements and reported valuations, via SD-03 and SD-12.8.
  • Owns: E-07 Valuation on the method = manager_mark partition — the manager- or administrator-reported marks of private-markets holdings and directly-held private interests consumed as an investor in an externally-managed interest — and the method = appraisal partition (the real-asset appraisals RA-05 specialises); co-equal with SD-08.1 (observable_price / amortised_cost) and SD-08.2 (mark_to_model). It shares the manager_mark value with SD-12.9 Fund Accounting & NAV but is distinguished by producing capability: SD-08.3 records the mark the institution consumes as an investor, where SD-12.9 strikes the NAV of a vehicle the institution operates. Also owns RA-05 Asset Appraisal — the third-party appraisal record (IVS / RICS Red Book) that supports a directly-held real-asset valuation; RA-05 is the audit-trail record behind the E-07 row for a method = appraisal valuation applied to an RA-01 holding.

Standards

  • IPEV Valuation Guidelines — the International Private Equity and Venture Capital Valuation Guidelines — the standard methodology for private-equity and venture fair value, including the back-testing recommendation.
  • IVS (International Valuation Standards) and the RICS Red Book for real-asset and infrastructure valuation.
  • IFRS 13 / ASC 820 — private assets are predominantly Level 3 (significant unobservable inputs); ASC 820’s NAV-as-a-practical-expedient for fund interests.
  • The AIFMD independent-valuation requirement and SEC Rule 2a-5.

Open extensions

  • The income / market / cost methodology sub-model.
  • The GP-mark-challenge workflow and the LP-versus-direct split.
  • The Service-Operation-level input/output contracts.

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