EU GPs still protective of valuations – survey

Fund managers in Europe prefer in-house valuations, but are increasingly open to outsourcing fund administration if the price is right, research shows.

Just 32 percent of fund managers make use of independent valuation in limited partner reporting, even though 86 percent see the benefits of using a third-party valuation provider to ensure corporate governance requirements are met, according to a survey of global private fund GPs conducted by Citco, Houlihan Lokey and pfm.

“GPs have important knowledge of the investments. This knowledge is key to the valuation process and gives the GP a solid foundation to assess the value during the course of the investment,” said Anne Sheedy, director at EQT Services, at a panel event on Tuesday.

She acknowledged that as US investors are now expected to use outsourced valuations as part of best practice, European GPs need to be accommodating. “We appreciate that the valuation procedures are moving in this direction and the important thing is to be flexible. If you have a large institutional investor in front of you saying, ‘I need a third party valuation’, of course you will meet such requirements,” said Sheedy.

Fund administration is outsourced more frequently, with 69 percent of GPs surveyed saying they use a third-party administrator.

“Outsourcing fund administration works well when the service is treated as an integral part of the fund’s business,” said David Sarfas, managing director at Citco, a fund administrator. “If a fund administrator has the right people working for the client and is paying attention to that relationship, an administrator can really add value to the fund’s overall offering.”

But some still need convincing from a costs perspective. “Even in Asian markets, where outsourcing is not usual, we have seen an increased engagement from fund managers in the region,” said Cindy Ma, managing director at fund administrator Houlihan Lokey. “Private equity funds’ fees are based on realizations. Managers are reluctant to incur fund administration costs over long investment holding periods,” she said.