The trade body for the alternatives investment industry has opened a consultation on new standards related to the valuation of private market assets.

The Standards Board for Alternative Investments (SBAI) is engaged in a comprehensive review process to update its standards to address emerging areas, with the first consultation paper focusing on valuation and the needs of closed-ended vehicles.

The industry body said it was targeting standards that introduce a consistent framework for assessing the quality of the valuation processes used by alternative investment managers, while enhancing transparency and disclosure provided to institutional investors.

Among other things, it has proposed amendments to reduce conflicts of interest regarding related-party transactions and service provider engagements, and to provide investors with additional comfort on valuation methodology appropriateness and subjectivity of inputs/assumptions.

SBAI today also announced new guidelines on the governance, transparency and disclosure in private market valuations.

It said the guidance was designed to educate allocators and investment managers on good valuation practices, addressing a range of valuation methodologies as well as the variability and subjectivity that can arise in private-market valuation processes.

It also aims to provide practical advice on how investors and managers should assess the role of third-party service providers in supporting valuation processes, while also addressing the risks of overreliance and failure to conduct adequate due diligence.

Private-market valuations have been a source of uncertainty for investors in recent years, and Mario Therrien, SBAI chair, said the new guidelines “mark a critical milestone in improving transparency and trust within the industry”.

“Private markets are complex, but this guidance provides a roadmap to ensure that investors understand the key factors that influence valuations, including the role of third-party providers.”

In Denmark, several pension funds have been rapped by their supervisor over their valuation of alternative assets.

The SBAI’s guidelines were developed by the body’s private-market valuations working group, which comprises leading alternative investment managers and institutional investors from the SBAI’s global network.

Paula Volent, an SBAI trustee and vice-president and chief investment officer of the Rockefeller University endowment, said: “These guidelines are a crucial step in providing clarity on how managers and service providers formulate valuations.

“By improving transparency and establishing clearer disclosure practices, the guidelines help ensure that we, and other institutional investors, can make more informed decisions based on a stronger understanding of the assumptions and methodologies driving these marks.”

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