IPEV Updates Private Equity/ Venture Capital Valuation Guidelines

by Robin Pilgrim, LawandTax-News, London

11 September 2009

The International Private Equity and Venture Capital Valuation (IPEV) Board has updated its Private Equity Valuation Guidelines to take into account the evolution of fair value accounting requirements, especially those of the Financial Accounting Standards Board (FASB) in the US and the International Accounting Standards Board (IASB).

The principal changes relate to:

• clarifying how the marketability discount should be applied;
• eliminating any reference to the one-year period used in practice for retaining investments at “Price of Recent Investment” concept,
• to ensure there are no conflicts with accounting rules; additional guidance on how to include additional milestone analysis into the “Price of Recent Investment” concept; and
• guidance on the valuation of interests in funds.

“To a large extent, the updated guidelines are consistent with the previous version,” said Anthony Cecil, IPEV board member and partner at KPMG. “Changes have been made to eliminate potential confusion and to ensure consistency with converging international accounting standards.”

The IPEV Guidelines are drafted to be consistent with IFRS and US GAAP. As US GAAP and IFRS standards continue to evolve in the area of fair value, the board plans to provide additional updates to the guidelines.

Herman Daems, the IPEV board chairman, said, “The updated guidelines provide practical best practice guidance on valuing private equity investments in a difficult market environment. Fair Value continues to provide the best basis for investors to monitor their portfolios and to assist in making key asset allocation decisions.”

The International Private Equity and Venture Capital Valuation Guidelines were originally issued in March 2005 to address the need for greater comparability across the private equity and venture capital industry. They have now become a worldwide standard for use by private equity and venture capital managers. Investors increasingly require fund managers to comply with IPEV valuation guidelines when estimating the fair value of assets for financial statements and reports.

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