Valuation Policy
A valuation policy is the documented methodology a manager uses to value assets, especially illiquid holdings, for NAV and reporting.
Allocator relevance: Determines trust in marks—valuation discipline affects TVPI, net returns interpretation, and re-up decisions.
Expanded Definition
Valuation policy defines inputs, frequency, governance roles (valuation committee), third-party involvement, and how conflicts are managed. In private markets, valuations are inherently judgment-based, so the process must be consistent, conservative where appropriate, and audit-ready. Changes in valuation policy or inconsistent marks are red flags for allocators.
How It Works in Practice
Managers mark holdings quarterly using comparables, financing rounds, cash flow models, or third-party appraisals depending on asset type. Policies define when to mark up/down and how to handle stale pricing.
Decision Authority and Governance
Governance includes valuation committees, audit oversight, and sometimes LPAC involvement when conflicts or subjective marks are material.
Common Misconceptions
- Valuation is objective because it’s “based on comps.”
- Marks don’t matter until exit.
- Audits guarantee accuracy (audits review process; they don’t set market prices).
Key Takeaways
- Valuation policy is a trust mechanism.
- Consistency and disclosure matter.
- Marks drive reported performance metrics and behavior.