FCA Private Markets Valuation Review

The UK Financial Conduct Authority (FCA) recently conducted a multi-firm review of private market valuation practices in response to concerns about rising interest rates and changes in market conditions for private assets. The findings from this review are available on the FCA website here.

Background

Rapid growth in private markets has heightened the importance of robust valuation frameworks; policymakers such as the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board have emphasised emerging risks in private finance, prompting the FCA to scrutinise firms’ valuation methodologies, governance, and conflicts management. Over several phases, from initial questionnaires in 2024 through published findings in early 2025, the FCA has underscored the need for consistent valuation policies, clear oversight, and timely revaluations, signalling that its upcoming regulatory updates will focus on ensuring fair pricing in UK private markets.

Key findings

It is important for firms to note key findings from the FCA’s review of private market valuation practices, including:

Governance arrangements

• Most firms had valuation committees, but some lacked detailed records on how valuation decisions were reached.

Conflicts of interest

• While fee-based conflicts were generally identified, other potential conflicts (e.g. marketing unrealised performance, inflating valuations to achieve low LTV values for NAV financing, asset transfers) were often only partly documented.

Functional independence and expertise

• Strong independence was observed where valuation functions were staffed by individuals with relevant expertise, separate from portfolio management.
• Independence can be compromised if senior investment staff dominate committee voting, limiting the effectiveness of challenge.

Policies, procedures, and documentation

• All firms had valuation policies, though many lacked detail on the rationales for selecting valuation methodologies, the required inputs and data sources, assumptions, potential conflicts in the process, and escalation measures.

Frequency and ad hoc valuations

• Quarterly valuations were common amongst the reviewed firms.
• Where firms use valuations to charge fees or price redemptions and new subscriptions, stale valuations can lead to inappropriate fees and investors redeeming at inappropriate prices.
• Most firms did not have a formal process for conducting ad hoc valuations.

Transparency to investors

• The depth and clarity of reporting varied widely, with some firms providing thorough asset-level detail and valuation breakdowns.

Application of valuation methodologies

• Firms on the whole used market or income-based approaches.
• 70% of firms reported adhering to the International Private Equity and Venture Capital Valuation (IPEV) Guidelines.

Use of third-party valuation advisers

• Engaging external advisers can add independence and specialised expertise, especially for complex or high-risk valuations.
• Firms need to be aware of the potential conflicts when using third-party valuation advisers.

The FCA’s next steps

• The FCA will conduct targeted follow-up with outlier firms and further engage with the industry on governance, conflicts, and valuation processes.
• Findings will inform potential upcoming revisions to UK rules derived from AIFMD, the Bank of England’s work on Non-Bank Financial Institutions, and IOSCO Committee 5’s review of the 2013 Principles for the Valuation of Collective Investment Schemes.

Our guidance

In light of these findings, we suggest that firms:

• Formalise a valuation committee with clear terms of reference, keep minutes documenting challenges to valuation decisions, designate a senior manager to oversee the valuation process, and ensure independence between valuation teams and investment staff.
• Identify and record conflicts of interest, including fee-based incentives, net asset value (NAV)-linked financing, and marketing using unrealised values - specifying relevant controls.
• Document valuation methodologies, assumptions, and rationales for each asset class, perform back-testing to compare exit prices against prior valuations, and review the valuation process at least annually to incorporate evolving market conditions and regulatory requirements.
• Provide consistent valuation reports to investors.
• Define formal processes for ad hoc valuations, refine approaches over time, monitor global and domestic regulatory updates, and foster a culture of constructive challenge of valuation decisions.
• Consider that external valuation advisers could be engaged to provide greater independence and expertise, provided their scope is clearly defined.

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