Thomas HACHETTE, a partner at Sorgem Evaluation, has carried out a study based on a survey of investment fund valuation practices.
Whilst there is a wealth of academic literature on business valuation, as well as numerous articles and guidelines written by business valuation professionals, analysis of the valuation practices of investment professionals is, by contrast, much rarer.
Yet understanding these valuation practices appears, in many respects, to be absolutely crucial: the definitions of ‘Fair Value ’, ‘fair price’ and other terms that prevail in many contexts (fairness opinions, tax audits, corporate accounting, the OECD, etc.) all refer to the concept of a price that would be received for a sale in an ‘orderly transaction’ between market participants.
This survey addressed a number of points:
- the typical career path of professionals working in investment funds;
- their return objectives;
- the importance of valuation work to them;
- the valuation approaches generally employed;
- the valuation parameters of the DCF method;
- the multiples method;
- the valuation of optional rights.
In particular, it highlighted the practices on which there is consensus amongst investment funds, as opposed to those where views diverge. It was also possible to analyse the differences between the practices of investment funds and those of certain valuers.
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