Two analysts value the same holding. Same EBITDA, same comp set, same multiple, same 15% DLOM. They land on two different fair values: over 5% apart in the example below. The multiple is identical. The rate is identical. What differs is where in the bridge the discount is applied.
The IPEV 2025 Guidelines have no paragraph on DLOM (Discount for Lack of Marketability, the market's usual acronym). They rule out a discount for marketability, defined as the time needed to complete a transaction (§1), and treat the lack of liquidity of unquoted shares as a factor when adjusting multiples (§3.4). Where the discount sits in the bridge is therefore a matter for the fund's valuation policy: the doctrine lies not in the rate chosen but in the step of the calculation where it is applied.
What DLOM corrects, and what it does not
A listed comparable multiple prices a share that is liquid and can be sold in days on an organized market. A private equity holding is not: its shares have no active market and, for a minority holder, exit depends on other shareholders — a risk IPEV considers higher than for a holder able to drive the exit (§3.4). Fair value is nonetheless measured as if the holding were sold at the measurement date, whether or not the fund intends to sell (§1.4). DLOM corrects for this liquidity gap between the reference asset and the asset actually held.
It corrects nothing else. It is not a credit-risk adjustment, not a general margin of prudence, not a fix for an underperforming company — those belong upstream, in the choice of multiple or in the projections. Confusing the two means discounting the same risk twice without knowing it. IPEV lists liquidity among several distinct reasons to adjust a multiple — size, growth, reliance on a few key employees, borrowing (§3.4).
Two possible locations, one default
A fund's bridge starts from the multiple, builds the enterprise value, subtracts net debt to reach 100% equity value, then applies the ownership percentage to isolate the fund's fair value in the holding. DLOM can technically be inserted at two points:
- on the multiple, before enterprise value is computed — the market multiple is discounted before being applied to EBITDA;
- on the fair value of the holding, at the very end of the bridge — after net debt and after the ownership percentage.
These are not two equivalent conventions that converge by construction. Because net debt is subtracted as an absolute amount rather than pro-rated with the multiple, discounting before or after that subtraction produces two different 100% equity values, and therefore two different fair values for the holding under the same rate assumption. Jolv applies DLOM on the multiple by default, consistent with IPEV 2025, which treats lack of liquidity as one of the adjustments to multiples (§3.4). Applying it on the fair value of the holding remains a configuration choice, one to document as a methodology decision rather than a minor variant.
A worked example
Let's take a worked example. Company EBITDA: EUR 10,000K. Median market multiple from the peer set: 9.0x. DLOM applied: 15%. Net debt: EUR 20,000K. Fund ownership: 30%.
DLOM on the multiple. Applied multiple = 9.0 × (1 − 0.15) = 7.65x. Enterprise value = 10,000 × 7.65 = EUR 76,500K. 100% equity value = 76,500 − 20,000 = EUR 56,500K. Fair value of the holding = 56,500 × 30% = EUR 16,950K.
DLOM on the fair value of the holding. Enterprise value = 10,000 × 9.0 = EUR 90,000K. 100% equity value = 90,000 − 20,000 = EUR 70,000K. Fair value before discount = 70,000 × 30% = EUR 21,000K. Fair value after discount = 21,000 × (1 − 0.15) = EUR 17,850K.
Same EBITDA, same multiple, same discount rate: a EUR 900K gap on this single holding, over 5% of the fair value reported. Across a twenty-line portfolio, the cumulative gap is not a rounding error — it is a NAV delta an LP can reasonably ask to have explained.
Where DLOM should never be applied
Two mistakes recur in campaign reviews. The first is discounting net debt: debt is a contractual claim carried at face or fair value, with no liquidity premium to strip out — it is not the asset being valued. The second is discounting 100% equity value before it is allocated across instruments. In a simple pro-rata structure the result is arithmetically identical to discounting the fund's share (70,000 × 0.85 × 30% = EUR 17,850K); a gap appears as soon as a waterfall — liquidation preferences, ratchets — allocates value across instruments (IPEV §2.4). The discount must remain consistent with the instrument the fund actually holds (IFRS 13, §69).
Document the choice, not just the rate
An auditor challenging a DLOM rarely starts with the rate, which rests on a documented judgement. IPEV favours calibration to the entry price, which already captures part of the liquidity effect (§2.6, §3.4): applying a DLOM on top of a calibrated multiple would count the same effect twice. What the auditor asks is where that rate applies, and why that choice was made over the alternative. A valuation policy that fixes the rate without fixing the location leaves a degree of freedom open between analysts — exactly the kind of inconsistency a documented valuation policy is meant to close. For an AIFM, Delegated Regulation (EU) No 231/2013 requires the valuation policy to address adjustments related to the liquidity of positions (Article 67) and the chosen methodologies to be applied consistently (Article 69).
The choice of location should be a configuration option at the method level, not an oral convention passed from one quarter to the next. That is what fair value and multiples covers in Jolv: a configurable discount injected automatically into the multiple, consistent across campaigns. The full set of available valuation methods, DLOM included, is on the valuation methods page. The DLOM glossary entry and the IPEV 2025 FAQ restate where it applies.
Sources
- IPEV Board, International Private Equity and Venture Capital Valuation Guidelines, December 2025 edition, §1, §2.4, §2.6, §3.4 and Section III "Defined Terms" (Liquidity, Marketability)
- Commission Regulation (EU) 2023/1803 of 13 August 2023, IFRS 13 Fair Value Measurement, OJ L 237, 26.9.2023, §11 and §69
- Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU (AIFMD), OJ L 83, 22.3.2013, Articles 67 and 69