How Many Hedge Funds Have Valuation Processes?

by: Susan Mangiero, CFA

Business Valuation Resources and Pension Governance, LLC just completed a joint survey on business valuation firms that currently provide valuation services to hedge fund clients. It appears that relatively few hedge funds are reaching out to the business valuation profession, despite regulatory and legal pressures to improve valuation practices. Some highlights are summarized below:

  • Of the few survey respondents who currently provide services to hedge funds, appraisers say that 55% of their clients have a formal valuation process in place.
  • Appraisers who took the survey say that almost half of their hedge fund clients generate valuation numbers internally. A quarter of their clients rely on third party administrators. Relatively few used certified business appraisers.
  • Many reasons were given by appraisers as to why hedge funds procure a valuation. These include, but are not limited to: auditing (33% of respondents), asset allocation (27%) and performance reporting (24%), redemption (18%) and risk management (18%).
  • Eight out of 10 appraisers with hedge fund clients say they’ve never been called in to assist their hedge fund clients with the development of a valuation policy.
  • When asked about standards (guidelines), 48% of survey respondents claim their clients cite fair value accounting rules, 23% of respondents say their hedge fund clients use no standards and 23% of survey-takers cite the Private Equity Industry Group Guidelines [PEIGG] as a guide for their hedge fund clients.
  • For those survey respondents who choose not to pursue hedge fund valuation work, appraiser liability is cited as the primary deterrent (77% of respondents), followed by 54% of survey-takers who say they are unfamiliar with the hedge fund industry.

Editor's Note: Thirty-nine persons answered the survey. Additional research is underway.