How to Read an AIF Valuation Policy
Understanding the Manager Decision
A fund's valuation policy determines how unlisted, unrealised holdings are marked and enter the reported NAV. Because these are private, illiquid assets with no daily market price, the methodology used to value them directly shapes the performance figures investors see each quarter.
Reading Evidence and Attribution
Check the valuation frequency (quarterly is standard), whether an independent third-party valuer is involved or all valuations are done in-house by the manager, the specific methodology used (comparable transactions, discounted cash flow, or the latest funding round), and whether the policy has changed over the fund's life.
Where Manager Diligence Breaks
The common failure is not asking whether the manager has ever overridden or deviated from its own stated valuation methodology for a specific holding. A one-off override, especially one that inflates a struggling position's marked value, is a meaningful governance red flag.
Making the Selection Decision
Before committing, confirm: whether valuations are independently reviewed or entirely in-house; the specific methodology for each major asset type in the portfolio; whether the policy has changed during the fund's life and why; and whether the manager can point to any instance of deviating from its own stated methodology.
A valuation policy investors never actually read is a policy that provides no real protection, however well it is worded in the PPM.
Key takeaways
- Valuation methodology directly shapes the reported NAV and performance figures each quarter.
- Check valuation frequency, independence from the manager, and the specific methodology used per asset type.
- A one-off override of the stated methodology, especially one that inflates a struggling position, is a red flag.
- A valuation policy investors never read provides no real protection, however well-worded in the PPM.
More in Fund Manager Selection and Due Diligence
Continue with the other chapters in this module.
Related questions
What should an investor verify first?
Whether valuations are independently reviewed or done entirely in-house by the fund manager.
Which documents matter most?
The fund's stated valuation policy and methodology, read directly from the PPM.
What is the main downside to test?
Whether the manager has ever overridden or deviated from its own stated valuation methodology.
How should the final decision be made?
Confirm independence, frequency, and methodology consistency before relying on any reported NAV.
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