Valuation best practices: Answering the 'frequency' question
September 11, 2018
This past August, when President Donald Trump conveyed via Twitter that he had asked the SEC to study the possibility of moving from a quarterly to a biannual reporting schedule, the investment community at large took notice. While such a move ultimately seems unlikely—particularly given the transparency premium afforded to domestic stocks—it does bring to mind pressing questions around reporting frequency that are common among private-market participants. More specifically, while there is general agreement that a quarterly reporting cadence is usually appropriate, how private equity fund managers corroborate their internal assessments of fair value and the frequency at which they provide independent third-party validations can differ considerably across the GP universe.
As long as fair value remains something of a subjective measure, however, the prevailing question for GPs will revolve around the amount of rigor that goes into third-party validations and when, exactly, these independent assessments should accompany portfolio-company reporting. The easy answer—that it depends on the strategy and structure of the specific fund—is typically less than satisfying.
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