Dr. Cindy Ma, Global Head of Houlihan Lokey’s Portfolio Valuation & Advisory Services practice, was interviewed about the need for third-party valuation providers and the best practices in portfolio valuation being adopted by private fund managers due to increased regulatory scrutiny. One question the interviewer asked: When the valuations are finally completed, they are generally handed off to the auditor. How do you think their review process has changed over time?
More explanation is better: “Many fund managers have likely noticed the increased scrutiny by auditors over the past few years,” Ma responds. “Among other things, this is driven by an increased focus on risk management, and by increased regulatory oversight of the auditor community. Auditors have to meet certain professional standards that require them to understand the assumptions utilized in the valuation. A good valuation firm will not only provide assistance to the client throughout the audit process, but will have had experience with many auditors and be able to anticipate the critical issues likely to be raised in the review. Our clients and the auditors tell us the process runs best and most smoothly when they receive a full and complete report. The report should describe the methodologies used and why. It might also cover what is not used and why. The report should also discuss critical inputs such as multiples, discount rates, cap rates, etc., and defend each of these input assumptions. More is better!”
The full interview, which appears in private funds management (pfm), is available if you click here.