Serving the Quantitative Finance Community

 
User avatar
Jericho
Topic Author
Posts: 25
Joined: August 22nd, 2007, 3:14 pm

Valuation of Private Investments

April 3rd, 2022, 10:26 am

Hi All - was hoping someone might be able to share their thoughts:
[*]We have a small number of private investments in companies that are expected to IPO in the not-too-distant future. We currently have 10 of these, and while the number is growing it isn’t growing too quickly.
[*]Up through recently we had a vendor who we use to price various illiquid names / CVRs / poison pill rights, etc, pricing our private investments, but all they really seemed to do was to mark the positions at cost, or if they got info on where another fund was marking it they might match that price.
[*]In order to improve our valuation process, we moved to another vendor, who provides a service that is based much more on analysis and data;

As we move forward, I want to be able to approach these valuations more systematically, including thinking about methodology and assumptions, as well as a more systematic process for making sure we have updated financials and other info from the companies in question.

Does anyone have further thoughts on this on how I can approach these valuations more systematically - my only thoughts so far is to utilize the OPM (Option Pricing Methodology) in Excel or to track how the vendor is pricing these investments over time and query anything where the price hasnt changed over the last few months...Im sure there are other more efficient processes one could utilize however?  Does anyone have any thoughts or experience on this?

As always thanking you in advance..

Rgds

J.
 
User avatar
Marsden
Posts: 787
Joined: August 20th, 2001, 5:42 pm
Location: Maryland

Re: Valuation of Private Investments

April 3rd, 2022, 1:26 pm

Long ago this was addressed for employee stock options by the customer (IBM? That's what my memory suggests, but it doesn't seem right for a few reasons ...) having their banker (GS? Again, might be misremembering.) come up with a value for accounting purposes ... with the understanding that the customer would have the right to transfer the obligations to the bank for that value if it so chose.

Not easily available, and would tend to overstate value ... or in the situation you describe, understate ... but the bias would be (to my thinking) generally a good thing.

Basically an implementation of the "you cut, I choose" method of fairness.