Key Principles and Practical Implications for Fund Managers
The 2025 International Private Equity and Venture Capital (IPEV) Valuation Guidelines1 build on the existing framework with expanded practical guidance, placing greater emphasis on judgement, calibration, and consistency in how fair value is applied across complex and illiquid investments.
For fund managers, the implications are clear: valuation is increasingly a dynamic, evidence-based process that must be reassessed at each measurement date and supported by documentation that can withstand audit scrutiny.
What the 2025 Guidelines Mean in Practice
The 2025 update reinforces several key areas where valuation approaches may need to evolve and where documentation and process will face the closest scrutiny:
Reassessing Fair Value at Each Measurement Date
Recent transaction prices should not be assumed to represent fair value indefinitely.
In practice: Fund managers should reassess valuations each period, even in the absence of new transactions, particularly where market conditions or company performance have shifted.
Greater Emphasis on Calibration
Calibration to the price of a recent investment remains critical, but must be actively maintained as inputs change over time.
In practice: Initial transaction pricing serves as a benchmark, but models must be updated consistently to reflect current assumptions and market data.
Increased Focus on Complex Capital Structures
Additional guidance has been introduced around liquidation preferences, allocation across share classes, and scenario-based methodologies.
In practice: Valuation models should be structured to reflect how value would be distributed under different exit scenarios, rather than relying on simplified or static assumptions.
Enhanced Guidance on Debt and Hybrid Instruments
The Guidelines emphasize separating debt and equity components and incorporating market-based credit assumptions.
In practice: Convertible instruments and structured securities should be evaluated with greater precision, including updated discount rates and credit risk assumptions.
Artificial Intelligence (AI) as a Supporting Tool
AI may assist in valuation processes but does not replace professional judgement.
In practice: Fund managers may incorporate AI tools to support their process, but must maintain full responsibility for assumptions, methodologies, and conclusions.
ESG Considerations Must Be Measurable
Sustainability factors should only be reflected in valuation when they have a direct and quantifiable impact on value.
In practice: ESG considerations should not be applied broadly or qualitatively unless they clearly influence cash flows, risk, or market participant behavior.
Core Principle: Fair Value as the Standard
The Guidelines continue to define fair value as the price that would be received in an orderly transaction between market participants at the measurement date.
For fund managers, this means:
- Valuation reflects a hypothetical exit price, not cost basis or holding value
- Fair value is market-based, independent of fund-specific intent
- The price of a recent investment is not automatically fair value, particularly when circumstances change
Foundational Valuation Principles
The Guidelines emphasize several principles that should underpin all valuation processes:
Market Participant Perspective
Valuations should reflect the assumptions of independent market participants.
In practice: Internal forecasts or strategic views should be adjusted to reflect how third-party buyers would assess value.
Consistency and Comparability
Valuation approaches should be applied consistently across investments and reporting periods.
In practice: Changes in methodology should be limited, well-supported, and clearly documented.
Known or Knowable Information
Only information available at the measurement date should be considered.
In practice: Fund managers should avoid incorporating hindsight, while ensuring that all available and relevant data has been considered.
Judgement and Avoidance of Bias
Valuation requires professional judgement and should avoid approaches that are overly mechanical or that introduce systematic bias.
In practice: Assumptions should be supportable, balanced, and aligned with observable market data where possible.
Valuation Methodologies
The Guidelines outline three primary approaches:
- Market Approach: Comparable multiples and observable transactions
- Income Approach: Discounted cash flow (DCF) analysis
- Net Asset Approach: Asset-based valuation
In practice: Fund managers should prioritize observable inputs where available and ensure the selected methodology reflects the nature and complexity of the investment.
Enterprise Value and Allocation Framework
Valuation often begins with enterprise value and is then used to allocate value across the capital structure.
- Adjust for non-operating items
- Deduct senior instruments
- Allocate across equity classes based on rights and preferences
In practice: Liquidation preferences and structural features should only impact valuation where they are expected to affect actual economic outcomes.
Practical Considerations for Fund Managers
The 2025 Guidelines provide expanded clarity in areas where judgement is most critical:
Limited Information Environments
Valuation is still required even when data is incomplete.
In practice: Fund managers should incorporate market trends and apply appropriate risk adjustments when relying on limited or lagged information.
Secondary Transactions
Secondary pricing may not reflect fair value.
In practice: These transactions should be evaluated carefully, considering whether they are orderly and whether pricing reflects broader market participant assumptions.
Co-Investments
Reliance on lead investor valuations is not sufficient.
In practice: Fund managers should independently assess valuation inputs and conclusions, even when information is provided by or shared with co-investors.
Market Dislocation
Fair value remains the standard in volatile markets.
In practice: Valuation assumptions and inputs should be revisited at each measurement date to reflect current market conditions.
Valuation of Fund Interests
For fund-of-funds and similar structures:
- NAV is typically the starting point
- NAV must reflect fair value of underlying investments
- Adjustments may be required based on timing or structural considerations
In practice: Fund managers should implement controls to validate third-party valuations and assess whether adjustments are necessary.
Governance and Process Expectations
The Guidelines reinforce the importance of a structured valuation process:
- Documented policies and procedures
- Transparent assumptions and inputs
- Independent review and oversight
- Ongoing calibration and backtesting
In practice: Strong governance is critical for audit defensibility and maintaining investor confidence.
Houlihan Capital: Applying IPEV in Practice
At Houlihan Capital, our valuation approach is built around the principles of the IPEV Guidelines, on delivering consistent, transparent, and audit-defensible fair value measurements.
We support alternative investment fund managers by:
- Applying market participant-based valuation methodologies
- Leveraging calibrated models tailored to illiquid and complex assets
- Addressing complex capital structures, early-stage investments, and debt instruments with tailored methodologies
- Providing clear documentation and support for auditors, LPs, and regulators
With experience across 300+ fund clients globally, our team combines technical rigor with practical execution to help fund managers meet evolving valuation expectations.
Implications for Fund Managers
For fund managers, the real challenge is not understanding the IPEV Guidelines, but applying them consistently in practice. As portfolios grow more complex and scrutiny from auditors and regulators increases, a disciplined and well-supported valuation approach becomes essential.
Whether you are reassessing your valuation framework, preparing for an upcoming audit, or navigating complex or illiquid positions, Houlihan Capital can provide the expertise and support needed to help you meet those challenges.
To learn more or discuss your specific fund valuation needs, please contact:
Sasha Deihimi
Vice President
sdeihimi@houlihancapital.com
