Portfolio Valuation and Fund Advisory Services

Boards, trustees, audit committees, and asset managers turn to us to help navigate their financial risks. We work with their management to give expert advice on value and develop objective assessments of a fund’s financial instruments and the underlying risks. Our state-of-the-art tools for risk identification, measurement, and monitoring, as well as our vast industry knowledge, make us a leader in derivatives valuation and risk management. We draw on our industry know-how—combining technical and quantitative expertise, market knowledge, innovative thinking, and creative approaches—to help meet our clients’ needs. 

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Given the difficulty of valuing illiquid assets and the potential for conflicts of interest, our clients rely on us for independent third-party valuation services. Our practice is deeply rooted in fair valuation of illiquid assets on behalf of hundreds of hedge funds, private equity firms, financial institutions, corporations, other investment managers and investors. Whether you report under ASC 820 or IFRS 13, the practice of reporting investments at cost until portfolio companies or securities are sold is no longer compliant under U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). We are a leading advisor on valuations required under ASC 820 and IFRS 13 due to our deep portfolio, private-company and derivatives valuation experience, and strong relationships with regulators and auditors.

The valuations of alternative asset managers are far from simple. Complex structures created by managers to incentivize performance while providing for tax efficiency, combined with the unique attributes of comparable public companies and transactions, call for an in-depth understanding of both the manager and the broader industry. Situations like changes in senior members, succession planning, raising new capital at the manager level, attracting and retaining talent through equity ownership, or the outright sale of an equity stake in the manager have driven the need for these valuations of the fund management entities themselves as opposed to the underlying investments held by these funds. 

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We assist financial sponsors, including private equity funds, hedge funds, and credit funds, through a range of affiliate transactions. As regulators and investors increase scrutiny of private investment funds, sponsors must be aware of actual or perceived conflicts of interest in affiliate transactions. Transactions or trades conducted by a sponsor among its affiliates may lead to investor challenges and regulatory actions.

Fund affiliate transactions often address end-of-life fund issues or involve combinations of assets across funds. Affiliate transactions that may be actual, or may be perceived as, conflicts of interest include:

• Cross-Trades or Fund Transfers
• Fund Seeding
• Fund Recapitalization
• Principal Transactions
• Contractual Arrangements
• Season and Sell

We can assist sponsors in satisfying their legal, regulatory, and contractual duties in connection with an affiliate transaction. Fairness opinions or valuation opinions may serve to both protect the sponsor and facilitate discussions about the transaction with the LP Advisory Committee and other parties. The receipt of independent advice and a financial opinion by a sponsor in affiliate transactions has become a widely adopted practice.

Houlihan Lokey has been at the forefront of providing valuation and fairness opinions to sponsors across a wide range of affiliate transactions. We have provided these “fund opinions” to many leading sponsors in connection with fund transfers, fund recapitalizations, and other portfolio company transactions.

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We are a market leader in advising buyers and sellers of portfolios of illiquid securities on investment diligence and value assessment. Our advice and analysis supports a streamlined and efficient acquisition or divestiture process, allowing for more timely and informed transaction decisions.

Our clients include hedge funds, private equity funds, banks, insurance companies, and corporations. To service these clients, we are able to mobilize a deep bench of resources with relevant transaction experience to provide real-time market insights as well as asset class and industry-specific expertise. We are also cognizant that transaction structures, buyers’ and sellers’ incentives, market dynamics, and liquidity are among many factors that play an important role in pricing decisions.

Houlihan Lokey’s quality work product and insightful analyses, combined with our ability to meet tight deadlines, make us the ideal valuation partner for sponsors and financial institutions considering the purchase or divestiture of a portfolio of illiquid securities. 

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New rules in the securitization world involving “risk retention” will no doubt continue to reshape the markets. We advise committees and senior management on horizontal/vertical slices in securitization vehicles, capitalized management vehicles, and majority-owned affiliates.

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Drawing on our extensive experience analyzing, structuring, securitizing, underwriting, investing in, and trading whole loans and structured credit instruments, our professionals employ thorough analytical methods and powerful proprietary modeling techniques. Our valuation process incorporates robust market data to provide clients with superior valuation and advisory services that reflect current market developments for all structured products.

Our professionals have analyzed multibillion-dollar portfolios of individual securities, whole loans, and everything in between on behalf of originators, hedge funds, private equity funds, banks, insurance companies, fund administrators, and other financial institutions.

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Asset managers lean on us for assistance and guidance on valuation governance and to establish valuation best practices. We regularly outline roles and responsibilities of fund managers within the valuation process and define valuation policies and procedures by asset class.

Alternative asset managers are under significant pressure from regulators and investors to enhance their governance over the valuation process. Increased investor scrutiny has led to a demand for greater transparency in the valuation and reporting of illiquid investments. Today, investors are insisting on a valuation framework that is free of conflicts of interest, especially when committing new capital. Further, regulatory developments are affecting valuation practices in the asset management industry and are likely to necessitate greater valuation support as well as evidence of proper control infrastructure around financial reporting.

We are at the forefront of evolving trends in portfolio valuation best practices and have advised some of the most respected asset managers in the industry.

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