Reed Smith Client Alerts

Key takeaways

  • The recent less favourable macro-economic environment has led to regulatory unease regarding valuations of private assets.
  • Firms holding private assets on behalf of investors may have a range of incentives not to apply appropriate rigour in their approach to valuation of such assets. Inappropriate rigour has the potential to cause harm to investors and in some cases, the broader financial system. As a result, the FCA has launched a review into this area.
  • Following this review, the FCA is expected to make changes to the regulatory framework that applies to valuation, either by issuing new guidance or by making new rules.
  • To mitigate the impact of any such changes, firms that hold private assets should ensure their approach to valuation is robust and aligned with industry best practice.

Auteurs: Romin Dabir Brendan Gallen Bethan Harris, Anglee Kumar

stock market


In September 2023, the Financial Times announced that the Financial Conduct Authority (“FCA”) would be conducting a review of the way investment funds value private assets (“Review”). In a “Dear CEO” letter addressed to asset managers published on March 1, 2024, the FCA recently confirmed that it will undertake this review.

The Review comes amid concerns about rising interest rates globally and changes in market conditions for private assets. Shortly before the Review was announced, the International Organization of Securities Commissions (“IOSCO”) published a report entitled “Thematic Analysis: Emerging Risks in Private Finance”, analysing emerging risks in private finance highlighting valuations as a key risk area for the sector. Broadly, while the rise in interest rates has negatively affected the prices of listed equities and government bonds, the values of private, unlisted assets have frequently not adjusted accordingly, raising questions about current valuation methods and the need for a revision.

In the “Dear CEO” letter, the FCA confirmed that the Review will look into valuation practices for private assets, including (i) examining the personal accountabilities for valuation practices in firms; (ii) governance of valuation committees; (iii) the information reported to boards about valuations; and (iv) the oversight by relevant boards of those practices.