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Financial Markets’ valuation benchmarking insights

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In recent years, there has been an increased focus from stakeholders in the asset management sector on the valuation process and governance for assets that are not readily marketable or traded on a regular basis. The asset management sector owns the largest concentration of these assets, but private investors in the insurance sector and, to a lesser extent, in the banking sector are invested as well. 

One key trend involves the expansion of investment dollars in private assets by corporates, sovereigns, and pension plans. This growth is likely driven by global capital markets reacting to the historically low interest rate environment. To increase returns, investors have expanded into equity as well as other credit assets. Investments in private debt have been concentrated in loans and structured products.

PwC conducted a survey designed to gather, analyze, and share information about key industry issues and metrics. This survey focused on 80 US-based asset management firms representing more than $1.6 trillion of AUM, and it included hedge funds, credit funds and private equity funds.

Survey topics

Valuation process

  • In-house valuation preparation vs. third-party firm
  • Frequency of in-house/third party valuations
  • Timing of valuation cycle

It has become increasingly common to have a dedicated valuation department that is separate and independent from the deal team. An in-house group exists for the preparation of the valuation models in 83% survey participants.

Most firms, 67%, said they prepare valuations on a quarterly basis, while 28% prepare valuations monthly. Investors continue to seek more transparency and more frequent data reports on their investments. 

The valuation cycle has narrowed to meet stakeholder expectations. Approximately 70% of participants said they start the valuation process within 20 business days before the reporting date, while about half complete the process within 20 days after the reporting date.

About 60% of participants said they engage third-party valuation firms in some capacity. The primary objective is to provide additional evidence for the valuation conclusion prepared by the investment managers. Most participants obtain an estimate-of-value report. 

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Use of technology

Valuation tools/systems

  • Spreadsheets, internally developed technology, externally purchased technology, or combination

The primary tool for valuations is a spreadsheet with a continued focus on the implementation of a technology platform to drive speed and efficiency throughout the valuation process. We expect continued investment to capture key data inputs and provide consistent reporting through the use of digital workflows, natural language processing, bots, data reporting, and visualization.

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Valuation governance/oversight

  • Composition of valuation committee
  • Frequency of meetings
  • Level of detail in valuation committee review

Oversight of the valuation process has continued to be a focus of stakeholders, evidenced by 74% of participants saying they have a formal valuation committee. The committees typically consist of four to ten members of senior management and usually include the COO, CFO, general counsel and senior portfolio managers. These committees meet quarterly 54%, with many meeting monthly, 36%.

Valuation committees are generally responsible for valuation policy, policy exceptions, valuations exceeding specified thresholds, and reviews of complex and significant valuations. 

Approximately half of the valuation committees review 100% of the investment valuations. 

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Valuation methodology

  • Market approach/DCF and underlying assumptions
  • Allocation methodology
  • Use of discounts

The majority of valuations are market based (83%), with the use of a discounted cash flow (DCF) approach (61%) as the secondary technique. Survey participants indicated that the DCF approach is complex due to the need to prepare cash flow forecasts, which can be difficult especially with less mature companies or emerging industries.

Approximately half of the participants weight their valuation approaches based on facts and circumstances. Other firms have a primary approach and use alternative approaches to evaluate the conclusion from the primary approach.

One area that continues to be discussed is the allocation of enterprise value to various securities in the capital structure. Most participants use a waterfall approach (75%). With complex capital structures, entities consider other approaches to use such as an option pricing model (OPM).

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Valuation documentation

  • Preparation of formal valuation memo
  • Content of valuation memo

Most participants, 75%, prepare a formal valuation memo for each investment in addition to the valuation model. These memos typically address company history, performance, rationale for the selected method, key inputs and assumptions, market data, and calibration.

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External reporting

Disclosures included in "unobservable inputs" table in the financial statements footnote

  • Methods and most common inputs

Only 15% of participants disclose inputs and assumptions to investors beyond the “unobservable inputs” disclosure requirement. This trend is common among the hedge fund, credit fund, and private equity fund categories.

For those that disclose information beyond the disclosure requirement, 90% include this information within the financial statement footnotes. The remainder present this information within other reporting provided to investors.


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Regulatory and stakeholder attention to the valuation process is likely to drive a continued focus on enhancing these activities for the near future.

The recent release of the AICPA Private Equity and Venture Capital accounting and valuation guide will likely encourage process enhancement, particularly over documentation, inputs and assumptions, and calibration techniques. While the state of current technology in this space remains dedicated to the spreadsheet function, investments in technology and automated tools are likely to help with incorporating improvements going forward.


Contact us

Shaan Elbaum

Partner - Assurance, Financial Markets, PwC US

Dimitra Katsina

Director - Assurance, Financial Markets, PwC US

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