Investors lack confidence in Q1 valuation process, according to survey

Due to the current financial crisis, investor confidence in illiquid asset valuation has been shaken, according to a survey by PEF Services, a fund administrator for alternative investment managers. Officials polled 150 financial professionals, including members of the Financial Executives Alliance (FEA) during a webinar held in mid-April. They found that valuations may take a significant hit and exits are uncertain. All eyes are on investor reporting and communications, according to PEF Services. When it comes to fund NAV most (28%) expect valuations to decrease between 11% and 15%. Yet a high number – 16% -- said that valuations could increase by more than 20%. According to most managers (70%), more investors are asking for the first time about upcoming capital activity. They added that those investors that have asked in the past are now asking more often. The PEF webinar underscored the need for investor transparency in capital activity, reporting and issues related to valuations. Officials added that if done right, investor transparency will maintain and possibly enhance the trust between firms and their investors. For the next few quarters, 43% of managers said that a combination of capital activity forecast, forecast for impact on PCAPs/NAV, detailed information on watch list companies, status and expectations for deal pipeline and the impact on management company would all factor in to information requested by investors. When it comes to fundraising, it seems to be a mixed bag. A total of 40% of managers said they are not in the market, while 33% said that placement agents reached out to investors and institutions and are on track but other investments are delayed. "In your next fund raise, every LP is going to ask how you handled this crisis. They will look at your valuation process and documents with 20/20 hindsight," said Anne Anquillare, CEO and president of PEF Services LLC. "The game changers lie in demonstrating greater transparency, visibility and accountability." Officials said an influx of capital is flowing into the illiquid alternative asset class, yet the asset class lags with standard and reporting. Performance plus transparency equals access to capital, experts said. And reporting standards such as 2020 GIPS and ILPA are playing a pivotal role in achieving transparency, according to PEF. "One investor's 'standard' is not a standard," commented Hank Boggio, senior managing director and chief revenue officer of PEF Services LLC. "As a major asset class, illiquid alternative investments need to have consistent standards, adoption and scalable technology solutions."

Investors lack confidence in Q1 valuation process, according to survey

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