WOLF & CO Alerts Current Asset Valuation Issues for Investment Managers

Current Asset Valuation Issues for Investment Managers

The last year has seen the stock market take significant downturns, and its volatility means that valuation will likely be an increased risk in fiscal year 2022. This is especially true for entities holding private investments, specifically hedge funds, private equity funds, and venture funds. Asset managers who are billing clients based on assets under management (AUM) that may include these valuations in their AUM should take special note.

If you hold private company investments or hard-to-value investments, you need to ensure your valuation techniques incorporate market factors. These factors should include the recent increases to interest rates and any comparable public companies’ valuations. As a responsibility to your clients, and to support any potential SEC inquiry, the valuation techniques and documentation around subjective inputs into these valuations should be well thought out and documented.

For investment advisors that bill AUM based on valuations of these investments, ensure that these valuations are updated on the same basis as your billing cycles.

Be sure to talk to your audit and tax teams about any questions you may have, and make sure they are comfortable with your planned approach to valuation.