Private equity investors are coping with the challenges of valuation and audit of alternative assets, but a majority say their documentation process may not meet new accounting standards for hard-to-price and hard-to-value assets, according to a recent survey by Northern Trust.
Northern Trust conducted the survey of its global custody clients during a recent webinar on alternative assets valuation. The survey was conducted of more than 50 of Northerns institutional clients with a median investment of $2 billion in private equity and alternative assets.
“Clients are facing an increasingly complex landscape with regard to fair valuation rules for which minimal process guidance is provided,” says Paul Finlayson, alternative assets product manager at Northern Trust. The firm is working with clients and their auditors to help meet accounting and administration needs.
Private equity investors were surveyed to gauge their due diligence process, their level of comfort with the valuations provided from their alternative asset managers and their experience in dealing with auditors. About 70% described assessment of their investment as informal, with room for improvement to meet the criteria set by the Financial Accounting Standards Board. About half of the respondents anticipated greater need for documentation of these processes for future audits under ASU 2009-12, the latest update on FASB’s guidelines for hard-to-value assets.
The survey also found that private equity funds presented the most difficult challenge in gathering information to meet ASU 2009-12 accounting requirements: 64% of investors said they struggle to obtain sufficient information on private equity investments, while 48% of real estate investors and 36% of hedge fund investors said the same.
(CG)