The International Private Equity & Venture Capital Valuation Guidelines Board (“the IPEV Board”) has issued special guidance with respect to applying the IPEV Valuation Guidelines when estimating fair value at March 31, 2020, which will be “very challenging.” While the alternative asset industry is “strong and robust,” the COVID-19 crisis is “different from crises in 2001/2 and 2008/9,” says IPEV. “The current crisis has impacted more people, more businesses, more rapidly than any crisis in recent history.” The special guidance addresses equity and debt investments as well as limited partnership interests and includes this caution on “double dipping,” which can apply in other valuation contexts as well:
Care should be taken not to “double dip” with respect to valuation inputs—if performance metrics have been adjusted to take into account lower expected performance, an appropriate multiple should be applied rather than a multiple derived from comparable public companies whose results have not yet included lower expected performance. The same concept applies when using the income approach, discounted cash flow (DCF). If future cash flows have been adjusted the increase in the discount rate may be less than the increase in the discount rate if cash flows have not been adjusted for the impact of the crisis.