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Disclaimer: Capital at risk. Valuations of private equity and venture capital investments are inherently uncertain and may not reflect the actual value that can be realised. Past performance is not a reliable indicator of future results. Investors may not get back the amount originally invested.

The Financial Conduct Authority (FCA) recently published a multi-firm review highlighting critical gaps and best practices in private market valuations (1). As private equity and venture capital continue to expand as components to a well-balanced investment portfolio, ensuring robust, transparent, and reliable valuation methodologies is becoming increasingly important. The review highlights best practices while also identifying deficiencies in governance, independence, and conflict management that firms must address to ensure fair and accurate valuations.

Key Insights from the FCA Review

1. The Necessity of Independent and Transparent Valuation Mechanisms

The FCA’s findings emphasise that firms demonstrating the highest levels of valuation integrity have well-defined, independent valuation functions with robust governance frameworks (2). Independence from portfolio management and clear oversight structures mitigate potential conflicts of interest, enhancing investor confidence and market stability.

2. Addressing and Mitigating Conflicts of Interest

A significant concern raised by the FCA is that some firms do not adequately document and manage conflicts of interest within their valuation processes. Common sources of conflict include valuations tied to management fees, the marketing of unrealised gains, and asset transfers within fund structures (3).

3. Establishing Defined Protocols for Ad Hoc Valuations

The review found that many firms lack formalised procedures for conducting valuations outside their standard reporting cycle. Without structured protocols for ad hoc valuations, firms risk maintaining outdated valuations that fail to reflect current market conditions, potentially leading to investor harm (4).

4. Enhancing Transparency in Investor Reporting

Transparency in valuation disclosures remains inconsistent across the industry. The FCA identified that many firms provide only limited insight into their valuation methodologies, leaving investors with insufficient information to assess asset valuations accurately (5).

Sapphire’s Commitment 

The FCA’s review reinforces the importance of strong valuation practices in safeguarding investor interests and market integrity.Reflecting these expectations, Sapphire's governance seeks to:

• Adhere to IPEV guidelines and FCA regulatory requirements.
• Maintain robust governance structures.
• Ensure independence in valuation processes to avoid conflicts of interest.
• Conduct regular and ad hoc valuation reviews and assessments to accurately reflect market dynamics.
• Provide investors with sufficient detail and transparency in valuation methodology and reporting.

We very much welcome the FCA’s initiative to strengthen industry standards and the team at Sapphire reaffirm our dedication to providing investors with fair, transparent, and well-governed valuation practices.

Sapphire Capital Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN: 565716). This article is a financial promotion and is directed at professional clients and eligible counterparties only. It is not intended for retail investors. The content is provided for informational purposes only and does not constitute investment advice or a recommendation to invest. No representation or warranty is made as to the accuracy or completeness of the information. The value of investments may go down as well as up, and you may not get back the amount invested. Past performance is not a reliable indicator of future performance.

Sources:

 (1) FCA. (2025). Private market valuation practices.Available at: https://www.fca.org.uk/publications/multi-firm-reviews/private-market-valuation-practices.

 (2) Section 2.1 Governance Arrangements FCA. (2025). Private market valuation practices.Available at: https://www.fca.org.uk/publications/multi-firm-reviews/private-market-valuation-practices.

 (3) Section 2.2 Conflicts of Interest FCA. (2025). Private market valuation practices.Available at: https://www.fca.org.uk/publications/multi-firm-reviews/private-market-valuation-practices.

(4) Section 2.5 Frequency and ad hoc valuations  FCA. (2025). Private market valuation practices.Available at: https://www.fca.org.uk/publications/multi-firm-reviews/private-market-valuation-practices.

(5) Section 2.6 Transparency to investors FCA. (2025). Private market valuation practices.Available at: https://www.fca.org.uk/publications/multi-firm-reviews/private-market-valuation-practices.