Investment Led Valuation – Why It’s Time to Rethink Valuation Processes in Private Equity

Valuations are critical in private equity. They guide decisions. They build trust with investors. They ensure compliance with regulations. Yet, many General Partners (GPs) still rely on their investment teams to handle quarterly or monthly valuations processes, which is not the best use of their time.

Conflicts of interest. Inefficiencies. Inconsistent practices. These issues can hurt relationships with Limited Partners (LPs). They can also attract scrutiny from regulators. 

The solution? A dedicated valuation team. Independent from the investment team. Focused solely on valuations. This shift is gaining traction across the industry. It’s not just about solving problems – it’s about preparing for growth in a more complex market. 

When investment teams handle valuations, challenges arise: 

• Inefficiency: Valuations take time. Collecting data, running models, answering auditors – it all adds up. Investment professionals lose time they could spend on deals or portfolio management. 

• Inconsistency: Without a dedicated process, valuation methodologies can vary across assets. This makes reporting less reliable as inconsistency issues may arise across a portfolio. 

• Increased Pressure: LPs and regulators want transparency and independence in valuations. Resource-strapped investment teams may struggle with meeting these demands. 

• Scalability Issues: More and more funds require frequent NAV updates for subscriptions and redemptions. Growing portfolios demand more data and faster reporting. The old model simply can’t keep up – valuation teams with the right technology in place are better suited for this new environment. 

A valuation team solves these problems by taking ownership of the process: 

• Efficiency: Valuation teams specialize in valuation methodologies, data collection, modelling, and reporting. This frees investment teams to focus on what they do best – creating value. 

• Accuracy: Dedicated teams apply consistent methodologies across all assets. This builds confidence with LPs and meets regulatory standards. 

• Scalability: Valuation teams can handle growing portfolios and complex fund structures, especially when supported by technology. 

Shifting to a valuation team-led model isn’t just about structure – it’s about tools, too. Technology plays a key role in making this transition smooth and effective. 

• Automation: Platforms like 73 Strings automate repetitive tasks like data collection, benchmarking, and model updates. 

• Real-Time Monitoring: Tools provide dashboards that track portfolio performance instantly, improving transparency for LPs. 

• Consistency: AI-powered solutions ensure standardized methodologies across assets, reducing errors and improving accuracy. 

• Scalable Systems: Technology supports growing portfolios without increasing costs proportionally. 

Some GPs worry about the cost of building a valuation team or using external services. It’s a valid concern, but consider the risks of sticking with an outdated process: 

• Reputational Damage: Inflated valuations can erode trust with LPs. 

• Regulatory Fines: Non-compliance with fair value standards can lead to penalties. 

• Bottlenecks: As portfolios grow, investment teams may struggle to keep up without compromising accuracy or timeliness. 

The cost-saving alternatives are: 

• Build a small internal valuation team that works closely with compliance and finance teams. 

• Use third-party firms selectively for complex assets or high-stakes transactions. 

• Leverage technology like 73 Strings to automate tasks and reduce manual effort. 

A multi-strategy manager recently made the switch from an investment-led process to a valuation-driven one using 73 Strings’ solutions. 

• The investment team was overwhelmed with valuation tasks. 

• Manual processes led to delays and inconsistencies. 

• LPs demanded more transparency and independence in valuations. 

They reached out to 73 Strings for a solution: 

• The firm adopted 73 Value for automated valuation workflows. 

• They used 73 Monitor for real-time portfolio tracking. 

• Data collection became seamless, improving efficiency across the board. 

The results were impressive: 

• Saved Time: Valuation preparation took less time, allowing the investment team to focus on deals. 

• Better Accuracy: Standardized processes reduced errors and built LP confidence. 

• Improved Communication: The firm delivered timely updates that strengthened relationships with LPs. 

• Future-Ready Systems: The new approach scaled easily as the portfolio grew larger. 

Switching to a valuation team-led model isn’t just about solving today’s problems-it’s about preparing for tomorrow’s opportunities: 

• Build trust with LPs through independent, transparent valuations. 

• Stay ahead of increasing regulatory scrutiny in private markets. 

• Scale efficiently as portfolios grow larger and more complex. 

With tools like 73 Value and 73 Monitor, GPs can make this transition seamlessly while keeping costs under control. 

Conclusion 

The investment-led valuation process has served its purpose, but it’s no longer enough for today’s private equity landscape. Conflicts of interest, inefficiencies, and growing demands from stakeholders make it clear that GPs need a better approach.

By empowering dedicated valuation teams – and supporting them with advanced technology, firms can enhance accuracy, transparency, and scalability while freeing up investment professionals to focus on creating value for investors.

Investing in robust valuation processes isn’t just about compliance, it’s about building trust and staying competitive in an evolving market.