Private Market Valuation and the Way Forward

Published by Steven Koenig

Private markets have expanded into a multi-trillion-dollar global asset class, yet the industry still struggles with one of its most fundamental responsibilities: determining consistent and defensible fair valuation. Frameworks such as ASC 820 and IFRS 13 were designed to promote transparency, comparability, and discipline. In practice, however, the application of these standards across private credit, private equity, and venture capital has become uneven, and in some cases, highly subjective.

The core challenge lies in methodological discretion. Managers may choose among income, market, or cost approaches—each with different assumptions, sensitivities, and data requirements. While flexibility is necessary to accommodate different sectors and stages, it also opens the door to optimistic bias. Reliance on last-round financing, delayed markdowns, and aggressive comparables have become common. The high-profile valuation resets at Tiger Global and SoftBank’s Vision Fund revealed how quickly “fair value” can converge toward “mark-to-myth” when liquidity tightens and exit markets stall.

This issue is most acute for Level 3 assets, where unobservable inputs dominate and management judgment drives the outcome. In too many organizations, valuation is still treated as an administrative or audit requirement rather than a core element of fiduciary duty. Without strong governance, independent oversight, and a consistent philosophy, even well-intentioned teams can unintentionally distort performance measurement, carry calculations, and internal decision-making. Conservative managers may appear to underperform peers who adopt more aggressive marks, creating an uneven competitive landscape that inadvertently penalizes discipline.

A more robust valuation practice requires both stronger analytics and better governance. Three specific action plans can materially improve outcomes while aligning firms with institutional best practices.

First, establish a valuation committee with independent oversight. Including internal finance leaders and at least one external valuation expert introduces structure, challenge, and accountability into the process. The committee reviews key assumptions, approves methodologies, and documents the rationale for all material marks. This mitigates conflicts of interest, supports audit readiness, and sends a clear signal to investors that valuation integrity is prioritized over short-term optics.

Second, implement sensitivity analysis and Monte Carlo simulation. Rather than anchoring on single “best estimate” values, managers can present a distribution of outcomes based on variations in growth rates, exit multiples, discount rates, and holding periods. This probabilistic perspective aligns with the spirit of ASC 820’s guidance on unobservable inputs and provides a more honest view of uncertainty. It also improves internal dialogue: instead of debating a single point estimate, teams can discuss ranges, probabilities, and downside scenarios.

Third, mandate robust documentation and quarterly reassessments. Firms should maintain clear records of inputs, data sources, and decisions for each valuation, and revisit them at least quarterly. This cadence captures changing market conditions, reduces the risk of stale marks, and helps identify emerging risks before they compound. While more frequent reviews may introduce short-term NAV volatility, investors are increasingly signaling that they prefer accurate volatility to artificial stability.

Taken together, these measures form a practical roadmap for strengthening fair value practices. A hybrid approach—combining an independent valuation committee with quantitative tools such as sensitivity analysis and Monte Carlo simulation—is often the most effective. It blends governance and analytics, transforming valuation from a static compliance exercise into a disciplined, repeatable process that reflects how risk and uncertainty actually behave in private markets.

Ultimately, valuation is more than an accounting requirement; it is a statement of integrity. When marks are inflated or inconsistent, they distort fund economics, erode investor confidence, and undermine the credibility of the asset class. When firms embrace transparency, humility, and analytical rigor, valuation becomes a strategic advantage rather than a regulatory burden. As private markets continue to grow in scale and systemic importance, those managers who treat fair value as part of their ethical foundation—not just their reporting framework—will be best positioned to attract capital, navigate volatility, and sustain long-term trust.