A History Lesson in Private Equity Valuations for Limited Partners

Sometimes things have a way of coming full circle. Private Equity Valuations for Limited Partners (LPs) is one of those things.

Throughout the decade leading up to 2008, LPs generally used the published Net Asset Values (NAVs) produced by the General Partners (GPs) of their funds, with little to no extra work.

Then in 2008, a perfect storm of new accounting guidance (FAS157), combined with the financial crisis, introduced a disruption to our industry. We were all adapting to an environment where the accounting standards and our auditors didn’t think it was adequate to just rely on GP values, but no one really had the answer to what best practice should be.

At that time, I was the global head of the alternative investment portfolio administration investor services team for J.P. Morgan. In response to an overwhelming client and industry demand, we held many client meetings, roundtable discussions and even hosted an entire conference to address this topic.

Coming out of that process, we published this best practice article:

Hard-to-Value Assets in Uncertain Times: Fair Value Reporting Best Practices for Limited Partners

It’s humorous to read it in hindsight. Not long after this article was published, the industry came full circle back to where we started, with LPs generally being able to rely on the NAVs produced by the GPs. This was thanks to a Practical Expedient introduced to alleviate the burden facing LPs.