AIMR addresses valuation standards

The Association for Investment Management and Research (AIMR), a professional association that issues investment reporting and valuation standards, has added a set of private equity valuation principles to its standards handbook.

The newest edition of the handbook, called Global Investment Performance Standards, for the first time includes a section called GIPS Private Equity Valuation Principles, according to an AIMR statement.


The AIMR handbook requires that private equity firms use the “fair value” method of pricing investments. This puts the group in step with another recent effort to bring standards to the private equity industry – last month, the Private Equity Industry Guidelines Group (PEIGG) issued guidelines of its own that recommend a fair value approach to reporting.


Like the PEIGG, the AIMR standards are meant to be voluntarily adopted, although the AIMR statement said “firms often find that doing so is a competitive necessity.”


Among the new AIMR private equity principles is a requirement that firms “document their valuation procedures and disclose that the procedures are available upon request.” In addition, “Valuations procedures should be reviewed by a qualified person or entity that is independent from the valuer, such as an advisory board or committee.”


The PEIGG also recommends that private equity funds establish valuation committees.


The AIMR handbook provides a “valuation hierarchy of fair value methodologies” to help firms arrive at appropriate valuations.


In the statement, Carol Kennedy, the chair of AIMR’s venture capital and private equity subcommittee, and a senior partner at UK fund of funds firm Pantheon Ventures, said, “The critical difference for private equity from other (quoted) asset classes is that the measurement of performance is hugely dependent on interim valuations of underlying securities, which are based on relatively subjective methodologies.”


Kennedy said the new private equity principles “encourage convergence of practices at a global level. . . They allow flexibility in the methodology used but at the same time require more extensive disclosure and explanation. And frankly, where a basis other than fair value is used, justification is required.”


AIMR is a 68,000-member professional association established in the early 1990s. Its headquarters are in Charlottesville, Virginia. The group also administers the Chartered Financial Analyst (CFA) exam.


The PEIGG describes itself as a temporary body formed to issue recommended standards for the private equity industry. In addition to valuations, the group also wants to form standards on how much information a GP should share with its LPs with regard to underlying portfolio companies; guidelines on whether IRR information in fund-marketing materials should be consistently presented on a net or gross basis; and the formulation of a ‘reporting template,’ or standard format by which GPs report to investors.