Britain’s financial watchdog scrutinizes private asset valuations. According to a source with knowledge, Britain’s financial watchdog is debating whether to review unlisted asset values to determine if they accurately account for the impact of rising interest rates on borrowing.
In September of last year, when rates on UK government bonds skyrocketed, so-called liability-driven investment funds, also known as LDI funds, found it difficult to secure more collateral. As a result, the Financial Conduct Authority (FCA) started investigating the broader liquidity issue.
The source, who wished to remain anonymous because the plans have not been formalized, said that authorities have shifted their attention to the larger market, including how private market assets are evaluated. The source said this effort will be a key area for the FCA over the next year or two, adding that it was still unclear if market players will be formally requested to reassess their holdings.
The FCA proposals were previously disclosed by The Financial Times. According to Richard Olson, director of UK and European valuations at investment bank Lincoln International, it was a wake-up call for alternative asset managers, particularly smaller scale funds. According to Olson, it may even encourage some smaller funds to outsource or merge with larger platforms fully.
According to Olson, most of the largest alternative asset managers have already switched to external independent values. “Sophisticated limited partners have been demanding independent valuations in diligence and fund governance for many years,” Olson added.
