Closed-end vehicles’ filing requirements typically allow 60 to 90 days. The evergreen fund space moves materially faster. In fact, rather than valuations being periodic and occurring four times a year, valuation committees will be meeting at least monthly and the process will be continuous, demanding an entirely new level of speed, resources and efficiency.

Performing quarterly valuations is already an arduous task for managers and even more so if deal teams are heavily involved in the process. To this end, asking investment professionals to roll up their sleeves eight additional times during the calendar year will become exceptionally time consuming, diverting attention from portfolio company value creation activities. As a result, Lincoln is observing that portfolio monitoring teams are taking on more valuation responsibilities and in many cases leveraging an outsourced solution to ensure both market and fundamental updates are incorporated at each NAV date.

Evergreen funds face heightened scrutiny, so it’s critical to ensure best practices are in place. For instance, funds that have traditionally relied solely on a market approach may want to incorporate a discounted cash flow method to provide a more robust and defensible fair value assessment. Additionally, managers will need to adopt policies for when and how new information, including monthly financial flash reporting, will be factored into the valuations and whether materiality or thresholds should influence this process. For example, while portfolio companies may provide financial updates monthly, managers will now need to determine how certain adjustments to earnings (EBITDA), which are historically evaluated quarterly by most managers and tend to take significant thought and time to determine, will be factored into and assessed during a monthly reporting cadence.

As affirmed through the Lincoln Private Market Index, while private market valuations are less volatile than public markets, they are not immune to shifts and often converge at points during economic cycles. Private Equity managers must rely on their expertise and judgment to determine whether market movements warrant adjustments to an investment’s value. Lincoln has observed a divergence in the mechanism that private equity managers use to consider the market impact on valuations with some managers revaluing all assets at each NAV date and others utilizing trigger thresholds to ascertain if an adjustment to fair value is warranted as a result of movements in public markets.

Finance professionals of all kinds are looking for ways to automate their repetitive processes.  As valuations become more frequent and portfolios scale, the need for time-saving tools becomes more important than ever.  Lincoln has built its own proprietary software that specifically serves the private markets to meet more frequent valuation requirements.