“Show me the valuation governance”: turning the FCA’s private-market-valuations review into a board-ready control framework
the FCA's multi-firm review of private market valuation practices, published 5 March 2025.
An FCA examiner sits with one document open: the valuation committee paper for a single asset. The questions come straight off that page. Who challenged this mark, and what did they say? The number moved up between quarters, so which assumption changed, on what evidence, and who approved the change? And when the same asset was marked in a single quarter to support a fundraise, pledged against a NAV facility, and used to crystallise carry, how was that overlap handled and who flagged it?
Many managers can’t answer any of that from records made at the time. They reach for the policy instead. That distance between what the policy promises and what the files can show is what the FCA’s 5 March 2025 review of private market valuation practices treated as its central concern. The regulator looked at 36 firms covering £3 trillion of global private assets under management, of which roughly £1 trillion was UK-based, across private equity, venture capital, private debt and infrastructure. Firms whose policy reads well but whose records can’t show it operating are now the ones exposed.
The review ran in two phases. First, a questionnaire to the sample of 36 firms. Then a closer look at a subset — governance, processes, document requests and on-site visits, with case studies built around individual asset valuations. The sample covered around £3 trillion of global private assets under management, of which roughly £1 trillion was UK private AUM, spanning private equity, venture capital, private debt and infrastructure.
The FCA named several practices it rated well. Clear NAV reporting with value bridges that break a period’s change into its drivers. Valuations that are documented rather than asserted. Third-party valuation advisers brought in to add independence. Methodology applied consistently from one asset to the next. Back-testing of marks against actual realisations, and realised figures kept separate from unrealised in marketing material. Most firms in the sample did these things. The real problems fell into four areas the FCA’s follow-up work is expected to cover.
The first is conflicts. Almost every firm had dealt with the obvious one, the link between a higher mark and a higher fee, usually through a written policy. Far fewer had identified, documented and mitigated the conflicts that run through the rest of a private-markets valuation. The FCA set out seven situations where a conflict is likely, and that list is the register it now expects to see.
The next two gaps are one problem seen from two sides. More than 90% of firms had a valuation committee on paper. Read the minutes you will see they recorded who attended and what was decided, but not how the decision was reached; there was no trace of the challenge or the reasoning that settled it. Ask the members afterwards and they couldn’t point to a single instance where a mark was contested. Minutes that record only attendance and outcome don’t evidence real challenge, whatever the terms of reference say. Independence showed the same pattern — present on the org chart but weak in practice. Few valuation functions were separate from portfolio management or able to push back on a deal team, and several simply processed the inputs they were handed. What most troubled the regulator was structural — senior investment professionals voting on the marks for assets they run. Where the person who sources an asset also votes on its mark, org-chart independence doesn’t hold at the decision.
The fourth gap was interim valuations. Most firms had no formal process for revaluing between quarter-ends, and few had set any threshold, quantitative or qualitative, that would force a fresh mark. When COVID-19 hit, and again after the Russia-Ukraine conflict, most waited for the scheduled quarter rather than remark. Marks went stale as conditions moved, harming investors and inviting enforcement.
A private-market mark sets the management fee on NAV-based mandates, fixes the point at which carry crystallises, prices transfers between fund vehicles, shapes the track record shown to prospective investors, sets the borrowing base for a facility, and informs how investors are allocated between vehicles. Each of those uses pulls the mark in a direction. Each also raises a fairness question the FCA now supervises.
The obligations aren’t new. Under onshored AIFMD, FUND 3.9 and 3.11.25 require valuations performed with due skill, care and diligence, under independent procedures, with conflicts documented and managed and depositaries overseeing the process. What the March review adds is a change of test: the FCA will now check whether that independence operates in day-to-day marking. Its findings feed into the AIFMD policy review, the Bank of England’s work on non-bank financial institutions, and IOSCO’s refresh of its valuation principles.
The IPEV Guidelines set the commercial fair-value standard that LPs and auditors already enforce, and the FCA has pushed managers to align with them. So the governance the regulator now expects and the governance an LP’s operational due diligence already asks for line up.
The FCA listed seven recurring conflict situations in private-market valuations. Most firms had documented only the fee conflict. The regulator expects all seven identified, documented and mitigated, so the table below is the minimum conflicts register the FCA expects to see.
| Conflict | What the FCA expects in mitigation |
|---|---|
| Investor fees. Fees are charged on NAV or on the marks, so a higher mark means a higher fee. | Fee linkage disclosed; independent challenge of any mark that moves a fee outcome; a committee minute showing the point was weighed. |
| Asset transfers. The manager’s own mark sets the transfer price into a continuation fund, dividing value between selling, buying and remaining investors. | An independent valuation or fairness opinion; conflicted parties recused from the vote; LPAC engagement recorded. |
| Redemptions and subscriptions. In open-ended or evergreen structures the mark sets the entry and exit price between new, exiting and continuing investors. | Governance over both the valuation point and the dealing point; anti-dilution mechanics; a documented basis for the dealing NAV. |
| Investor marketing. Unrealised marks carry the fundraising track record, which rewards a smooth, rising line. | Realised and unrealised kept separate in marketing; sign-off that marketed values reconcile to the committee’s marks. |
| Secured borrowing. NAV and subscription facilities carry LTV and diversification covenants, so a higher mark widens borrowing room or avoids a breach. | Valuation kept independent of treasury and of the facility; proximity to a covenant flagged to the committee as a conflict input. |
| Uplifts and volatility. A belief that investors prefer a smooth return can push a firm to damp genuine volatility in the marks. | Methodology held consistent through volatile periods; ad hoc valuation triggers; back-testing against realisations. |
| Employee remuneration. Carry and bonuses tied to marks or NAV movement bias the people producing the inputs. | The valuation team functionally independent; remuneration measures that limit undue influence; conflicted individuals non-voting. |
A process that answers the FCA’s findings has seven parts. But what separates firms is running all seven together so the evidence is created as the work happens, rather than assembled after a request lands.
- A valuation policy that explains its methodology choices. Most policies describe a process without giving the reasoning behind it, and the FCA wants the reasoning. For each asset type the policy should record the chosen methodology, market or income-based, and why it fits; the known limitations; the key inputs and where the data comes from; the accounting standards and IPEV references; the independence safeguards; the conflicts that apply; and how escalation works. Acknowledging methodological limits is more credible than claiming certainty.
- A committee whose voting members are independent of the deal teams whose assets they mark. The test the FCA applies is whether senior dealmakers vote on the marks for assets they manage. Deal teams can attend to give context; the vote stays with independent members. A smaller firm without that independence in-house can bring in third-party advisers to hold the role, which the FCA supports. The difference that shows up on review is between minutes that log attendance and minutes that capture the challenge raised and how the disagreement was settled.
- A valuation function that contests inputs. The FCA draws a line between a function that evaluates and pushes back on what the deal team submits and one that only processes it. The practical test is blunt: has your valuation function ever moved a mark against the deal team’s number, and can you point to the recorded instance? A function that has never moved a mark is operating administratively, whatever the policy says.
- Ad hoc valuation triggers set in advance. The policy should name the events that force an interim valuation between quarters: defined moves in comparable multiples, company-specific events such as a covenant breach or the loss of a key customer, fund-level events, and market shocks. It should also say how an ad hoc valuation is run once one triggers. Setting the triggers ahead of time keeps a firm from looking like it revalued only because the mark had already moved.
- Governance over third-party valuers. Bringing in an external adviser is sound, but responsibility stays with the firm. That means holding the relationship at arm’s length so the adviser isn’t captured, reading the adviser’s work critically instead of treating it as final, managing any commercial conflict where the adviser’s fee turns on the valuation, and disclosing to investors the type of service, its coverage and its frequency. If the deal team briefs the adviser directly and unchallenged, the conflict the outsourcing was meant to remove comes back.
- Committee papers written for a reader who arrives two years later. Record-keeping was the most common failing in the review. Assume a supervisor or an LP will read the paper two years on with no memory of the meeting, and record: the value assigned; the methodology and any change to it; the key assumptions and what moved them; the conflicts live in the period; how a challenge to the mark was resolved; the secondary method used to cross-check; and the named decision-maker. Templates and a standing assumptions log turn this into routine rather than a fresh effort each quarter.
- Board reporting that goes past the headline NAV. A board can’t oversee valuation from a single NAV figure. It needs NAV bridges at fund and asset level, the assets that met an ad hoc revaluation trigger, the marks moved against investment-team input, the back-testing of realisations against earlier marks, and the live conflicts for the period. Report at supervisory depth so the board sees what a supervisor would.
Run this on your own firm before anyone external does. Pick a material asset from a recent quarter and try to pull one source file that answers each point below. If the file is there, the control is working. If you’d have to reconstruct it, describe what usually happens, or promise to go and gather it, it isn’t.
- What value was assigned?
- What methodology produced it, and did anything change from the previous quarter?
- Which assumptions drove the number, and what moved them?
- Which conflicts were live in the period, and how were they managed?
- Who challenged the mark, and how was it resolved?
- What second method cross-checked the figure?
- Who was the named decision-maker?
For a firm running the seven parts above, all seven answers come out of one file.
For everyone else, the question is whether you can retrieve it in minutes.
This insight is provided for general informational purposes only and doesn’t constitute legal, investment, or regulatory advice.