INTRODUCTION TO VALUATION

The operational due diligence process presents investors with an opportunity to understand the methodology choices employed by private equity firms. Some General Partners (GPs) and even LPs may be inclined to imply that private equity fund valuation is a straightforward process. Indeed, your author has come across some GPs who argue that LPs should just effectively write a check to the GPs when the fund is first formed and, at least from a valuations perspective, they should not be overly concerned with valuations on any annual basis, never mind a quarterly one. This mentality is supported by the longer-term nature of private equity funds as compared to more liquid investments, such as hedge funds. A longer-term investment however, does no....