LPs are demanding that GPs disclose their valuation methodologies, not only as part of their initial due diligence, but on an ongoing basis.
Multiple LPs speaking with PE Manager said that lifting the lid on how and why a GP values an asset a certain way is becoming the industry norm.
Altius Associates’ chief operating officer Jenny Fenton asks that GPs provide a statement of the valuation policy in the initial Limited Partnership Agreement, and that any changes to that policy be specifically highlighted in quarterly reports.
Checking the consistency of a GP's valuation methodology was very important to the LPs interviewed as was the structure of a firm's valuation committee. On the latter point, LPs said they prefer seeing non-deal professionals sitting on the committee to ensure its objectivity. Other questions relate to what a GP's review process is like; who is responsible for signing off final valuation figures; and which LPs sit on the advisory committee, which can carry certain oversight duties on the valuation process.
All together, LPs agreed that firms are providing a high-level of information on their valuation policies which wasn't the case five years ago. But not everyone has upped their game sufficiently. One LP said that global buyout firms are providing a significant amount of valuation disclosure, but that smaller regional firms were more hit and miss.
For a more in-depth look into what LPs want to know about their GPs’ valuation policies and procedures, be sure to read the March issue of PE Manager.