Valuation in private equity and private credit remains a complex and contentious issue, with growing scrutiny from regulatory authorities who have identified areas where valuation methodologies need improvement to ensure accuracy and transparency. Austin Brady, a product lead at Waystone, said the firm’s practices in their valuation model include several steps to ensure “valuations are accurate and reflective of real market conditions.”
“By leveraging data from more liquid markets, the valuation model not only addresses these gaps but also ensures that valuations are accurate and reflective of real market conditions,” Brady said in a Waystone blog post. “This robust approach allows for transparent price evolution, providing a clear audit trail and increasing investor confidence.”
Valuing private equity and private credit presents several challenges, but Waystone’s AI-driven platform offers solutions to these issues. The lack of observable market prices for private assets often leads to inconsistent NAV calculations. Waystone addresses this by using data from more liquid markets to provide accurate, real-time valuations. Outdated practices and methodologies in valuation are another problem, but Waystone’s platform continuously updates its approaches to meet current market and regulatory standards.
The issue of inadequate role definition and oversight in valuation processes is also tackled by Waystone, which ensures clear role definitions and independent reviews to enhance accuracy. Additionally, NAV calculation complexity for different fund types is mitigated through high-frequency NAV reporting, particularly for open-ended funds.
Waystone also addresses market concentration risks by using stress testing and predictive analytics to forecast potential risks, helping to manage systemic instability. Opacity in asset valuations is improved with daily or ad hoc valuations and detailed analytics, enhancing transparency and investor confidence. Waystone’s platform effectively responds to these valuation challenges, fostering a more transparent and reliable valuation process.
Valuation challenges in private equity and private credit are a global issue due to the complexities and subjectivities of valuing illiquid assets. To address these challenges, the sectors need robust, transparent, and innovative solutions. Adopting such approaches can boost investor confidence, enhance compliance, and lead to a more stable and transparent market environment.
“Waystone’s expertise and advanced AI-driven valuation tool represents a significant step forward in addressing these challenges, ensuring accurate, timely and reliable valuations that meet both regulatory standards and market expectations,” says Brady.
Waystone is a global provider of governance, administration, risk, and compliance services for the asset management industry. The company supports institutional investors, investment funds, and asset managers, helping them build and manage investment structures with over 20 years of experience. Formed through a merger in 2021, Waystone offers tailored solutions across various asset classes and jurisdictions, ensuring regulatory compliance and client-focused service.