FCA review of Private market valuations

In June 2024, the Financial Conduct Authority (FCA) announced it will be reaching out to Private Equity (PE) firms for a review on how asset managers conduct private market valuations. The FCA review stems from concerns that current market practices and oversight procedures for valuing private assets may lack rigour. We understand that the review aims to evaluate the quality and robustness of valuation practices, focusing on the integrity of the process and the justification of valuation decisions¹.

What does Private market valuations review mean for Private Equity valuations?

The increased scrutiny on the private equity industry should prompt PE firms to proactively review and address any valuation risks and improve oversight procedures. Even PE firms with existing valuation procedures and in-house valuation teams should challenge whether their processes are sufficient. In practice, investment teams are often key decision-makers in asset valuations which may lead to a lack of independence or objectivity.

Addressing private market valuations

International Private Equity and Venture Capital (IPEV) Valuation Guidelines

Firms should be leveraging the International Private Equity and Venture Capital (IPEV) Valuation Guidelines², updated in December 2022, which outline best practices regarding the appraisal procedure, approaches and controls.

External valuations

We expect the FCA review to lead to changes that will enable investors to have greater transparency and confidence in the valuation of private investments. One option that is already available to the private capital market is to seek external, objective and independent valuation support. The benefits of external valuations include:

Enhanced Credibility: External valuation provides an independent perspective, boosting confidence in the investment values.
Expertise: External valuers bring specialised knowledge and experience, ensuring accurate and reliable valuations.
Compliance: Aligning with regulatory expectations, such as those from the FCA, helps avoid potential issues.
Transparency: Independent valuations offer clear and justifiable evidence, supporting the integrity of the valuation process.
Risk Management: Identifying and addressing potential valuation risks early can prevent future problems

To find out more on this topic or how BDO can support you with your valuation requirements to meet regulatory expectations, get in touch with one of experts listed below:

1. https://www.aima.org/article/uk-fca-to-kick-off-its-private-market-valuations-review-in-july.html

2. https://www.bvca.co.uk/Policy/Key-Policy-Areas/Accounting/IPEV-Valuation-Guidelines