VALUATION CONSIDERATIONS FOR NEWLY FORMED FUNDS

Investors, performing operational due diligence on a newly formed private equity fund that has yet to begin any investment activity, do not have any historical fund specific valuation evidence from which they can assess whether appropriate valuation methodologies are followed. In these cases, investors can look to the valuation procedures employed in vintage funds or similarly managed funds overseen by the private equity firm, if any such funds were historically managed.

Additionally, despite the fact that a fund has not been actively trading, investors can still take measures to evaluate the anticipated valuation processes and procedures that a private equity fund anticipates employing once investing activity begins. Such valuation guidance will likely be memorialized in several documents that a firm maintains. These can include the offering memorandum and due diligence questionnaires. Additionally, many private equity firms may also maintain separate valuation policies and procedure documents that may spell out the ways in which valuations are calculated on a more detailed basis.