SBAI releases new consultation on valuation standards for private market asset managers 

The Standards Board for Alternative Investments (SBAI), custodian of the Alternative Investment Standards, has announced that it has published a new consultation paper (CP5), containing proposed new standards related to valuation of private market assets.According to the announcement, SBAI’s proposed changes aim to ensure that the Standards “remain relevant and aligned with developments across the alternative investment industry, specifically in relation to illiquid assets.”“This includes Standards which seek to introduce a consistent framework for assessing the quality of the valuation processes used by alternative investment managers, whilst enhancing transparency and disclosure provided to institutional investors,” SBAI commented.For those unaware, the SBAI has a range of standards relevant to insurance-linked securities (ILS) investments, including what the organisation calls its Insurance Open Protocol, which has existed since 2017 and been adopted by a number of players within the ILS manager community.Last July, the SBAI updated its Insurance Open Protocol reporting template for ILS and reinsurance linked investment funds.Furthermore, the SBAI’s new consultation paper explains the importance of the valuation process for ILS investments and funds, particularly in relation to side pockets.The practice of side-pocketing is commonly used in ILS fund management, as a way to segregate potentially loss impacted or distressed assets from the rest of a fund portfolio.Side pocketing of assets can occur for a variety of different reasons, such as on or around the time the relevant asset is purchased, as well as on or around the point at which the relevant asset becomes hard-to-value.“The SBAI concurrently publishes new guidelines on governance, transparency, and disclosure in private market valuations. This guidance is designed to educate allocators and investment managers on good valuation practices, addressing a range of valuation methodologies, as well as the variability and subjectivity that can arise in private market valuation processes,” the SBAI added.The guidance also provides practical advice on how both investors and managers should assess the role of third-party service providers in supporting valuation processes, while also addressing the risks of overreliance and failure to conduct adequate due diligence.Mario Therrien, SBAI Chair, commented: “In recent years, private market valuations have been a source of uncertainty for investors, and the release of these guidelines marks a critical milestone in improving transparency and trust within the industry. Private markets are complex, but this guidance provides a roadmap to ensure that investors understand the key factors that influence valuations, including the role of third-party providers. I am proud of the collaborative efforts that have gone into this work at the SBAI.”Paula Volent, SBAI Trustee, Vice President and Chief Investment Officer at Rockefeller University,