Private Equity & Hedge Funds
The challenges facing Private Equity and Hedge Fund valuations have grown exponentially. There is:
- Increased scrutiny on initial investment levels and changes in carrying values over investment holding periods.
- Increased demand for detailed support for the value of portfolio assets. External valuation standards are changing from “internally prepared” to requiring independent, third-party corroboration of carrying values.
- Increased frequency of valuation updates demanded by constituents.
- Uncertainty around the definition of auditor independence following Sarbanes-Oxley restrict levels of service and distribution of results by the major accounting firms’ internal valuation groups.
- Uncertainty regarding proper implementation of FAS 157 for Hedge Funds & Private Equity investors.
- Maintenance of a reasonable level of fees while enabling a level of service that meets the needs of stakeholders.
Navigant Capital Advisors’ approach to value is different for each asset class:
- Securities with an active Public Market are valued based on recent trading activity, including consideration of investment size and liquidity.
- Private Equity investments are analyzed within the framework of an income and market approach. Depending on the nature of your investment, a discounted cash flow, comparable company and similar transactions analysis will be deployed.
- Private Debt and investments in 144(a) portfolios are analyzed using two approaches. Our first approach is to deploy internally developed credit-scoring models focused on deriving a shadow rating for the security and benchmarking against similarly rated securities. We look to industry guidelines published by Standard & Poor’s, as well as other rating agencies in the creation of these models. Secondly, we look to recent secondary market transactions in securities that are similar to your investments in industry focus, structure, duration and credit rating. These transactions are used as valuation benchmarks in the derivation of value.
The Navigant Capital Advisors Approach
Navigant Capital Advisors’ Valuation services are tailored for each client. Our team actively works side-by-side with clients throughout the entire valuation process. We understand the needs of various stakeholders, and the importance of tailoring responses to best meet those needs. Our work product has undergone detailed review and acceptance by Big 4 accounting firm technical review staff. The results are reflective of the accepted standards; consider your perspective on the issues; and are supported by the facts and circumstances surrounding the investment.
Our methodologies and findings have been presented to, and accepted by numerous rating agencies, qualified institutional buyers and certified investors. In addition, the SEC has reviewed and accepted our work in innumerable filings. We have extensive experience defending our valuations before the IRS (including Tax Court) and other tax and regulatory bodies.
Our levels of service range from fully documented quarterly analyses on an asset by asset basis, to a complete annual analysis supplemented with quarterly market/company driven updates, to the development of industry-level valuation metrics to be deployed by the client, coupled with an annual independent analysis performed by Navigant Capital Advisors.
Many of our senior professionals have prior experience performing technical reviews at the major accounting firms. We continue to maintain relationships with current reviewers at these firms. We are also dedicated to sharing information with the investment community, publishing and speaking on valuation topics.