Insights

As of 2025, the expectations placed on fund valuation have changed fundamentally. While traditional portfolios were once focused on classic asset classes such as equities or bonds, today's investment strategies are far more diversified and structurally complex. Alongside conventional investments, alternative and often illiquid asset classes are gaining significant importance particularly private debt, infrastructure, private equity, and structured derivatives.

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This growing diversification offers attractive performance potential, but also presents major challenges in terms of accurate and compliant valuation. Traditional approaches such as simple market price comparisons, peer group benchmarks, or standardized model estimates are no longer sufficient to meet the increasing demands of supervisory authorities. Instead, regulators now require a fundamentally different valuation approach defined by transparency, analytical depth, and full traceability.

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New Valuation Requirements in Detail

What was once accepted industry practice is now falling short of regulatory expectations. Market prices alone, particularly for illiquid assets, are no longer considered a reliable foundation for valuation. Supervisory bodies now expect valuation processes to be based on in-depth analysis, standardized methodologies, and transparent, traceable models ideally validated by independent experts.

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Especially in the case of illiquid investments such as private equity or infrastructure the importance of accurate and objective valuation has grown significantly. It has become a central area of regulatory attention. The goal: to identify and mitigate valuation risks and associated liability exposures at an early stage.

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Independence as a Core Requirement

One of the most critical aspects of modern fund valuation is independence. Valuation processes must be shielded from conflicts of interest and must not be influenced by parties with economic stakes in the outcome. Asset managers, issuers, or distributors who in the past developed or approved valuation methodologies internally are now under growing regulatory scrutiny this practice is increasingly viewed as a conflict of interest.

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Supervisory authorities such as BaFin, CSSF, and ESMA no longer accept internal price validations as sufficient. Instead, they require independent valuation procedures based on technically validated methods, documented processes, and the expertise of specialized professionals.

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Regulatory Expectations – Clearly Defined

Regulators now expect clearly structured, traceable, and audit-proof valuation frameworks. These must be based on:

• independent valuation methodologies,
• technically tested models,
• specialized valuation expertise,
• and end-to-end documentation across the entire valuation cycle.

Whether valuation is handled internally or externally, Alternative Investment Fund Managers (AIFMs) must ensure that all processes are transparent, compliant, and defensible from a regulatory and legal perspective.

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Valuation Under Increased Regulatory Scrutiny

The AIFMD has long required AIFMs to maintain transparent, risk-oriented, and independent valuation frameworks. The revised AIFMD II further sharpens this regulatory framework. Key focus areas include:

• enhanced transparency and oversight in outsourced valuation functions,
• clear structures and governance for complex portfolio valuations.

Supervisory bodies like BaFin and CSSF are also placing growing emphasis on methodological clarity and the strict avoidance of conflicts of interest especially when it comes to illiquid or hard-to-benchmark assets.

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Strategic Decision: Internal vs. External Valuation

Today’s fund managers face a critical strategic decision: Should the valuation process be conducted entirely in-house, or is it better to collaborate with an independent, specialized external partner?

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🔸 Internal Valuation: Maximum Control, Significant Operational Burden
Managing valuation internally gives firms full control over methodologies, data sources, and processes. However, it also requires extensive infrastructure, staffing, and compliance effort. Firms must recruit and retain qualified valuation professionals, maintain multiple data feeds, manage internal validation processes, and meet comprehensive audit requirements. For smaller and mid-sized AIFMs, this often becomes a significant operational challenge.

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🔸 External Valuation Service: Objectivity, Efficiency, and Regulatory Security
Partnering with an experienced external valuation provider like Value & Risk (V&R) offers a compliant and pragmatic alternative. Key benefits include:

• complete independence and objective valuation delivery,
• increased efficiency through tested methods and documentation standards,
• internal resource relief by outsourcing the entire valuation process,
• and comprehensive support with audits and regulatory inquiries.