On 5 March 2025, the Financial Conduct Authority (FCA) published its detailed findings from its multi-firm review of valuation processes for private market assets.

Background

The FCA sees good valuation practices as key to maintaining fairness and confidence as the private market grows. There is also global interest in valuation practices in private markets with, for example, the International Organization of Securities Commissions previously issuing a report which highlighted a relative lack of transparency and consistency in approaches to valuations.

The FCA’s review assessed the robustness of firms’ valuation processes and governance, including the checks and balances that help address the risk of poor conduct and harm to investors. It did not seek to independently validate firms’ fair value assessments for specific assets.

The FCA’s findings will primarily be of interest to asset managers, alternative investment fund managers (AIFMs), investment and portfolio managers and investment advisers. The key message from the regulator is that whilst firms generally demonstrated good practice in certain areas such as investor reporting there are areas that need improving including better identification and documentation of potential conflicts of interest in the valuation process.

Findings

In summary, the FCA found examples of good practice in firms’ valuation processes, including the quality of reporting to investors, documenting valuations, using third-party valuation advisers to introduce additional independence and expertise, and consistent application of established valuation methodologies. In some areas, such as transparency and disclosure, good practice went beyond existing requirements and the FCA has set out some of these so that firms may consider them.

The regulator also identified areas where firms needed to make improvements.

For example:

• Whilst all firms identified conflicts in their valuation process around fees and remuneration, and in many cases had limited these through fee structures and remuneration policies, other potential conflicts were only partly identified and documented. These included potential valuation-related conflicts related to investor marketing, secured borrowing, asset transfers, redemptions and subscriptions and uplifts and volatility. The FCA expects firms to identify, document and assess all potential and relevant valuation-related conflicts, their materiality and actions they may need to take to mitigate or manage them.
• Firms had different levels of independence within their valuation processes. The FCA expects firms to assess whether they have sufficient independence in their valuation functions and the voting membership of their valuation committees to enable and ensure effective control and expert challenge.
• Many firms did not have defined processes or a consistent approach for ad hoc valuations to revalue assets during market or asset-specific events. Firms are encouraged to consider the types of events and quantitative thresholds that could trigger ad-hoc valuations and document how they are to be conducted.

Next steps

The FCA expects firms to consider the findings from the review and identify any gaps in their approach, considering their size and the materiality of identified gaps. In particular, the regulator expects firms to consider whether they should make improvements in:

• The governance of their valuation process.
• Identifying, documenting, and addressing potential conflicts in their valuation process.
• Ensuring functional independence for their valuation process.
• Incorporating defined processes for ad hoc valuations.

The findings will be used in the FCA’s review of Alternative Investment Fund Managers Directive as it updates its rules in the Handbook and will inform the FCA’s contribution to IOSCO’s review of global valuation standards to support the use of proportionate and consistent valuation standards globally in private markets.

Industry reaction

A number of industry bodies have issued statements in response to the findings.

For example, the MFA stated:

“The FCA report confirms that the private credit industry employs robust valuation processes that strengthen capital markets by being independent, fair, and transparent for investors, including pensions. Cementing London as a hub for private credit funds will enhance UK economic growth and competitiveness. Private credit is a vital source of capital for UK businesses of all sizes, supporting job creation and innovation. MFA looks forward to continuing to work with the FCA to help the UK meet its growth objectives.”