The US private equity and venture capital industries have formally endorsed valuation guidelines published by the International Private Equity and Venture Capital Valuation board (IPEV).
Historically the Private Equity Growth Capital Council (PEGCC) and the National Venture Capital Association (NVCA) have remained quiet on valuation standards relative to their trade association counterparts elsewhere around the world. There is no obligation for member firms to incorporate the guidelines in their valuation process; however, the growing need for US firms to employ a consistent set of industry-inspired valuation rules when measuring the fair value of assets led to an endorsement of IPEV standards, according to market sources.
“Fair value estimates continue to face heightened scrutiny from auditors and regulators, and the IPEV valuation guidelines help these parties, as well as managers and investors, understand and apply valuation judgments using the perspective of such market participants as is required by relevant accounting standards,” said David Larsen, IPEV board member and managing director at financial advisory and investment banking firm Duff & Phelps.
The endorsements may further sink the relevance of US-focused valuation guidelines written by the Private Equity Industry Guidelines Group, which were last updated in 2007.
IPEV, which was founded by regional trade groups in France, the UK and Europe in 2005, has captured broader appeal and more financial backing to improve and update its guidelines, according to sources. Just last December the board updated its guidelines to harmonize its definition of fair value with US and international accounting standards.
The PEGCC and NVCA join 40 other endorsing organizations around the world that represent both GPs and LPs, including the China Venture Capital Association, European Private Equity and Venture Capital Association and Latin American Private Equity and Venture Capital Association.
“The IPEV valuation guidelines have been endorsed worldwide by both private equity and growth capital firms and their limited partner investors,” PEGCC head Steve Judge said in a statement. “They are the recognized standard for valuing private equity portfolio companies and provide guidelines for preparers and users of financial statements as well as their auditors and accountants.”