As the private equity and venture capital industry has grown in size, fund valuations or net asset values (NAVs) of illiquid, private equity-backed assets has naturally been of interest to regulators, academics and practitioners.
Findings from the FCA’s Private Markets Valuation Review published in March 2025 highlight good practice within the private capital industry. The review covered firms operating in a range of private asset classes, including venture capital, private equity, private debt and infrastructure. In the review, the UK regulator found that many firms interviewed maintained well-documented valuation processes, enhancing transparency and accountability, and generally applied valuation methodologies in a disciplined and consistent manner contributing to fair and reliable private asset valuations.
The FCA, however identified areas for firms to consider further when assessing their own valuation framework to identify any gaps. A key area is the identification and documentation of potential conflicts of interest particularly around asset transfers, investors marketing and secured borrowing. Other recommendations from the review include ensuring functional independence and expertise of valuation committees and having in place defined procedures for ad hoc valuation in response to market events.
Academic studies suggest that valuations of assets held by private equity funds are generally conservative, with an observed uplift versus the last valuation, when an exit transaction takes place. As private equity investors are compensated based on final realised values and not interim valuations, they have no incentive to inflate the value of their portfolios. Moreover, valuations in the industry are subject to stringent process and governance requirements with the vast majority of industry players following the International Private Equity and Venture Capital Valuation (IPEV) Guidelines.
The section below presents academic papers on valuations of private equity and venture capital funds.
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Brown, Gredil and Kaplan (2019) study the relationship between private equity fund interim performance reporting and fundraising success based on a sample of over 2,000 funds from Burgiss (now MSCI) and StepStone. They document that, while some underperforming fund managers overstate NAVs around the time of raising a follow-on fund, this behaviour will ultimately be punished by Limited Partners as those managers are less likely to raise a next fund. The authors also find evidence that valuations of top-performing funds are conservative.
Jenkinson, Landsman, Rountree and Soonawalla (2019) examine realised cash flows for 579 private equity and venture capital funds between 1988 and 2016 to determine whether fair value estimates of fund NAVs produced by private equity managers are correct and unbiased predictors of future discounted cash flows. The findings of the study show that buyout funds managers value their investments more conservatively relative to VC managers. Furthermore, accuracy appears to be lower early in the fund life, when GPs tend to report more conservatively by setting NAVs close to contributed capital, but it improves in the later stages of fund life as fund managers have a better understanding of the value of their investments.
Jenkinson, Sousa and Stucke (2013) analyse the quarterly cashflow and valuation data of 761 private equity fund investments made by Calpers, the largest US investor in private equity between 1990 and 2012. The authors conclude that fund valuations are conservative and tend to be smoothed relative to movements in public markets. Furthermore, they distinguish between buyout funds and venture capital funds, noting that buyout funds tend to be valued more conservatively than venture capital funds by their GPs. The authors observe a notable increase in valuations during the fourth quarter, coinciding with the typical audit period for funds. This pattern implies that fund managers tend to postpone updating valuations throughout the year, with the adjustments being generally positive.
Huether (2022) studies the accuracy of net asset values (NAVs) reported by private equity funds particularly regarding the elevated interim valuations observed around fundraising periods for low-reputation funds. Using deal-level data of over 130 private equity funds supplied by a large, international limited partner (as opposed to fund- level data widely used in similar studies in the past) the author finds no evidence of inflated valuations on a deal-level basis. Instead, his findings suggest that performance peaks appear to be a result of strong, early deals increasing in value ahead of fundraising, while later, sub-optimal investments (likely closed under pressure to deploy capital) tend to underperform. He concludes that “the pattern of high NAVs followed by low NAVs is due to deal timing rather than inflated valuations.”
Brown, Ghysles and Gredil (2023) in their study titled “Nowcasting Net Asset Values: The case of Private Equity” develop a new method to estimate unsmoothed NAVs of private equity funds at higher frequency using simulations and large sample of private equity and venture fund data from Burgiss. While their paper’s contribution is mainly methodological (the model delivers a superior estimate of NAVs relative to traditional extrapolation methods of reported NAVs), it also provides new findings to the broader literature on PE/VC fund -level risk and return. The paper shows variations in systematic and idiosyncratic risks across time and funds, noting that the market beta of an average buyout fund is around 1, while for venture capital funds it is around 1.4, indicating that private equity funds are no riskier than investing in public equity.
In addition to the above research centred on fund valuations, the industry study below looks at individual asset valuations. It discusses private market valuations compared to public markets and debunks myths of their irrationality and opaqueness.
The 2024 analysis by Dawson, formerly Whitehorse Liquidity Partners, an alternative asset manager, examines nearly two decades of data encompassing 1,075 private equity/ buyout exits across North America and Europe between 2005 and 2022. The results show that private equity firms tend to undervalue companies rather than overvalue them, with an average exit value 28% higher than the valuation two quarters prior. Even companies held for longer (10 years or more) are exited at a higher value, suggesting that private equity valuations are generally rational and conservative. The analysis indicates that during periods of market volatility, private valuations tend to decline less sharply than public market valuations, but they also take longer to recover compared to public markets.
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Bibliography
Brown, Gregory W. and Ghysels, Eric and Gredil, Oleg R., Nowcasting Net Asset Values: The Case of Private Equity, The Review of Financial Studies, Volume 36, Issue 3, March 2023, Pages 945-986. Available at: https://doi.org/10.1093/rfs/hhac045
Brown, Gregory W. and Gredil, Oleg R. and Kaplan, Steven N., Do private equity funds manipulate reported returns?, Journal of Financial Economics, Volume 132, Issue 2, 2019, Pages 267-297, ISSN 0304-405X, https://doi.org/10.1016/j.jfineco.2018.10.011
Coming to the Defense of Private Market Valuations. Published in Institutional Investor, February 8, 2024. Available at: Coming to the Defense of Private Markets Valuations (institutionalinvestor.com)
Financial Conduct Authority, Private Market Valuation Practices Review. Published on March 5, 2025. Available at: Private market valuation practices | FCA
Hüther, Niklas, Do Private Equity Managers Raise Funds on (Sur)real Returns? Evidence from Deal-Level Data (May 1, 2022). Available at SSRN: https://ssrn.com/abstract=3470517
Jenkinson, Tim and Sousa, Miguel and Stucke, Rüdiger, How Fair are the Valuations of Private Equity Funds? (February 27, 2013). Available at SSRN: https://ssrn.com/abstract=2229547
Jenkinson, Tim and Landsman, Wayne R. and Rountree, Brian R. and Soonawalla, Kazbi; Private Equity Net Asset Values and Future Cash Flows. The Accounting Review 1 January 2020; 95 (1): 191–210. Available at: https://doi.org/10.2308/accr-52486
The International Private Equity and Venture Capital Valuation (IPEV) Guidelines: Available at: https://www.privateequityvaluation.com/valuation-guidelines/4588034291
Learn more about the BVCA's Research Advisory Group
These studies have been compiled with the support of the BVCA Research Advisory Group, a committee of senior academics and practitioners who enable us to access a wider pool of research. The BVCA Research team would like to thank all members of the Group for their input, guidance and advice.