While some in the industry may refer to valuation as an art, Murray Devine's Steve Davis notes that LPs and regulators are seeking transparency into the science that informs the process and supports consistency.
In graduate school, it was probably drilled into most M&A professionals that the best remedy for potential bias in business valuation is self-awareness. If deal professionals can recognize the predispositions they may subconsciously bring into an assessment—whether they own the assets or are negotiating to buy the assets—they can take the required steps to proactively address any partialities, whether real or perceived.
As a result, though, many private equity firms probably lean toward being more conservative in reporting fair value estimates of portfolio-company assets. This inclination, noble in its intent, may also reflect a desire to under-promise and over-deliver. That being said, given the attention both limited partners and regulators are now placing on valuations, GPs today should be far less concerned about managing expectations than instilling consistency when it comes to outlining and executing upon their stated valuation policies.