Increased UK regulatory scrutiny: FCA taking a closer look at conflicts and valuations, including on GP leds

On 5 March 2025 the FCA released the findings of its multi-firm review of private market valuation practices. This has come hot on the heels of the FCA’s portfolio letter at the end of last month, which highlighted valuations in private markets as one of its 2025 supervisory priorities. In that context, the findings of the review will be of interest to alternative investment fund managers, portfolio and asset managers, and investment advisers, as well as investors and lenders to funds. 

The FCA is concerned that judgment-based valuation can lead to assets being valued inappropriately, creating risks for investors and market integrity. Possible causes include insufficient valuation expertise and conflicts of interest. The FCA assessed the robustness of firms’ processes and governance to manage such issues. The review does note many examples of good practice in a range of scenarios including asset transfers (including secondaries transactions such as continuation funds). However, the FCA has also identified areas for improvement. 

The review highlights the need for clear accountability for valuation and robust, independent oversight of the valuation process, with accurate and detailed record keeping of how valuation decisions have been reached. 

Firms are also urged to carry out more thorough analysis of all the potential conflicts of interest involved in valuations, not just those arising from fees and remuneration based on fund values, and to improve processes to mitigate those conflicts. Examples identified where unmitigated conflicts could lead to distortion are: 

1. Asset transfers: where these are based on a manager’s valuation, given conflicts such as the possibility of greater carried interest for the manager, separate teams and/or independent valuations are encouraged. The FCA expressly noted that all the firms with continuation funds in its sample had obtained an independent fairness opinion and limited partner advisory committee (LPAC) approval and indicated some doubt over whether investors considering whether to roll or exit on a continuation fund transaction have adequate access to information to assess the transfer price on their own. It merits noting that the FCA found that all GPs in its sample were obtaining fairness opinions, which across the wider European market has not always been the case (with GPs sometimes instead relying on a robust auction process and LPAC approval).
2. Investor marketing: track record information based on unrealised performance in offering documentation could be inaccurate, meaning that unrealised performance should be clearly marked as such and separated from realised investments. 
3. Redemptions and subscriptions: where these are priced on the basis of NAV, asset valuations need to be accurate to ensure that new, existing and exiting investors are treated equally. 
4. Volatility: Some may prefer valuation models which have a smoother return profile or an uplift on exit, which could exaggerate the stability of investments and/or make it difficult for investors to understand the true value of investments 
5. Borrowing: Secured borrowing typically contains NAV or valuation-based covenants, such as maximum loan to value (LTV). 

The review also contains advice on good practice relating to valuation policies, the use of external auditors, backtesting and frequency of valuations, as well as data on typical approaches taken by the firms reviewed. 

The FCA plans to engage with industry bodies and firms following these findings and to work particularly on conflicts of interest. It is not yet clear what form any further action will take, though the FCA has indicated that this work will link into its post-Brexit review of the Alternative Investment Fund Managers Directive. In the meantime, it would be prudent for managers and advisers involved with private assets (in particular those working on GP led transactions) to consider the FCA’s report and best practice guidance against their own processes. 

Authored by Amelia Stawpert, Jeremy Pickles, Cees Brouwer and Charlotte Monk.