European associations release guidelines

The AFIC, EVCA and BVCA have issued jointly developed valuation guidelines for the private equity industry, with ‘fair value’ as the central principle.

Three European private equity associations have jointly issued valuation guidelines for the private equity industry, the groups announced.

The “International Private Equity and Venture Capital Valuation Guidelines” was developed by France’s Association Française des Investisseurs en Capital, the European Private Equity and Venture Capital Association and the British Venture Capital Association.

The guidelines can be downloaded at

The three sponsoring associations noted in a statement of the new guidelines: “These are now open for endorsement by private equity and venture capital associations worldwide. All endorsing associations will be included in the final document with their logos and company descriptions”.

The guidelines provide instructions on ascertaining fair value in a private equity investment and applying those standards across a variety of situations, including internal funding rounds, bridge financing, mezzanine loans, rolled up loan interest and indicative offers.

In North America, similar valuation standards were proposed in 2003 by the Private Equity Industry Guidelines Group (PEIGG), a group comprised of GPs, LPs and other industry participants and formed to address the lack of standards in portfolio valuation in the industry.

According to a web site created to disseminate the European guidelines: “The International Private Equity and Venture Capital Valuation Guidelines were developed. . . to reflect the need for greater comparability for both investors and investment managers across the industry internationally and for consistency with IFRS and US GAAP”.

Limited partners have long complained that GPs have frequently applied varying valuation standards in reports. Some industry participants worry that unless standards are adopted, regulators may impose standards on the industry.

The European valuation work group includes representatives from PricewaterhouseCoopers, Deloitte & Touche, KPMG, Amadeus Capital, Kleinwort Capital, Grant Thornton and Sofinnova Partners.