Background<\/strong><\/p>\n The research was constrained to 36 firms in Phase 1.<\/p>\n The overarching findings from the FCA were:<\/strong><\/u><\/p>\n \u201cWe expect firms to consider the findings from this review and identify any gaps in their approach, taking into account their size and the materiality of identified gaps. In particular, firms should consider whether they should make improvements in:<\/strong><\/p>\n Of particular note was the requirement that full-scope UK AIFMs must ensure they establish appropriate and consistent procedures to perform a proper and independent valuation of a fund\u2019s assets and NAV (FUND 3.9.4R<\/a>) and have written policies and procedures that ensure a sound, transparent, comprehensive and appropriately documented valuation process (Article 67(1)Link is external<\/a>\u00a0of the AIFMD L2 Regulation).<\/p>\n Use of third-party valuation advisers<\/strong><\/p>\n The FCA stated\u00a0\u201cThird-party valuation advisers can provide additional independence and expertise. The value of their services as an additional control will depend on how firms use and engage with these providers. As third-party valuation advisers provide different levels of service, firms should make their investors aware of the specific nature of the service provided, its strengths and its limitations.<\/p>\n Full-scope UK AIFMs must use external valuers when not performing the valuation themselves (FUND 3.9.7R<\/a>). We found that this arrangement was rare, and instead many firms used the services of third-party valuation advisers while retaining responsibility for valuation.\u201d<\/p>\n The FCA stated that \u201cfirms that demonstrated good practice had used third-party valuation services after identifying material conflicts of interest such as calculating fees, pricing redemptions and subscriptions or asset transfers using valuations. These firms also considered the limitations of the service provided, took steps to ensure the independence of the third-party valuation adviser and noted that the firm retained responsibility for valuation decisions.<\/p>\n Where firms use third-party valuation advisers, their use should be appropriately overseen and potential commercial conflicts need to be identified and managed. Firms should consider the strengths and limitations of the service provided and disclosing the nature of the services used to investors, including portfolio coverage and frequency.\u201d<\/p>\n Ad hoc valuations<\/strong><\/p>\n The FCA made some comments on ad hoc, or out-of-cycle, valuations are those made outside the regular valuation schedule. It considered they can reduce the risk of stale valuations if material events cause significant changes in market conditions or how an asset performs.<\/p>\n It stated \u201cAn ad hoc process demonstrates that a firm has appropriate procedures in place where there is a material risk of an inappropriate valuation (Article 71(2)Link is external<\/a>\u00a0of the AIFMD L2 Regulation). This allows the firm to demonstrate that all assets held by a fund are fairly and properly valued and that the portfolios of funds are properly valued (Article 71(1)Link is external<\/a>\u00a0of the AIFMD L2 Regulation) at all times.\u201d<\/p>\n FCA\u2019s recommended actions<\/strong><\/p>\n These were the FCA\u2019s recommended actions<\/p>\n FCA\u2019s recommendations on good practice<\/strong><\/p>\n The FCA\u2019s findings on good practice are laid out below. Some of the most interesting comments from our perspective are highlighted in bold.<\/p>\n Most common valuation methodologies<\/strong><\/p>\n It was interesting to see that different types of assets lead managers to taking a a different approach to the use of valuation methodologies.<\/p>\n The FCA research found the most common methodologies are:<\/strong><\/p>\n
\nWhat is interesting was the limited number of Venture Capital and Private Equity firms contacted versus the entire UK universe which numbered 547 according to Beauhurst in 2023.<\/p>\n\n
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