Spreadsheets pulled from last quarter's folder. Someone tracking down the analyst who built the model for a company that has since pivoted twice. Auditors asking for support on a multiple chosen "based on comparable transactions" nobody documented at the time. The committee meets, approves, and everyone exhales — until the next quarter.
In its 2018 inspections of five French private equity management companies, the AMF found that none could provide a complete audit trail for its valuations. Managers who treat portfolio valuation as a process to invest in, rather than a recurring obligation to survive, are not merely avoiding audit friction. They are building an argument they can make to investors.
The hidden cost of an ad hoc process
When methodology lives in individual analysts' heads and scattered files, the costs surface in places that are easy to miss.
Inconsistency across the portfolio. One company valued on a revenue multiple, a similar one on EBITDA, with no recorded rationale for the difference. Investors and auditors notice.
Institutional knowledge walking out. When the person who built last year's model leaves, so does the context behind every judgement call embedded in it.
Slow, defensive audits. Instead of walking an auditor through a repeatable framework, the team spends weeks reconstructing what happened and why.
A weak signal for the investment team. Without a consistent, comparable view across the portfolio, it is harder to spot which companies are quietly drifting from their marks.
None of this is a valuation problem. It is a process problem, and process problems are fixable.
Three pillars of a defensible policy
Methodological consistency
A defensible process starts with a written framework: which method applies to which stage and sector, which data sources are acceptable, and how the method is expected to evolve as a company matures — from a milestone-based approach at seed to a market-multiple approach after a growth round. Consistency does not mean every company is valued identically. It means every deviation from the standard approach is deliberate and recorded. For an AIFM, the policy must also ensure that the valuation function is functionally independent from portfolio management (Directive 2011/61/EU, Article 19(4)).
A real audit trail
"We discussed it in committee" is not documentation. A real audit trail captures the inputs, the peer set, the assumptions and the sign-off at the moment the decision was made, not reconstructed weeks later under audit pressure. This is the highest-leverage investment a valuation team can make: it turns every future audit from an investigation into a walkthrough.
The IPEV Valuation Guidelines (December 2025 edition) treat the documentation of inputs, assumptions and significant judgements as best practice, and for an AIFM, Delegated Regulation (EU) No 231/2013 requires an "appropriately documented" valuation process (Article 67). That traceability is what allows someone who was not in the room to test a fair value conclusion.
Cross-portfolio benchmarking, on time
Valuation should not be a company-by-company exercise performed in isolation. The most useful signal often comes from comparing marks across the portfolio and against the market: the company whose multiple has drifted out of line with its peers, or the mark that has not been refreshed in step with a shifting market. The AIFM Directive only requires an annual valuation; funds that do this quarterly — the reporting frequency Invest Europe recommends for medium-sized and large managers — catch problems while they are still small.
A practical starting checklist
- Could a new hire reconstruct why a specific mark was set last quarter, using only the documentation on file?
- If the method differs between two portfolio companies, is the reason written down anywhere?
- How long does it take to prepare audit support for a single valuation — hours, or days?
- Can you see at a glance how marks compare across the portfolio this quarter?
- If your lead valuation analyst left tomorrow, would the process survive intact?
If any of these gives you pause, that is not a reason to panic. It is a roadmap.
The bottom line
Valuation will always require judgement; no framework replaces an experienced investment team. But funds that pair judgement with a consistent, documented and timely process are not checking a compliance box — they are moving through audits with less friction and giving their own teams a clearer read on performance. Where the documentation problem shows up first is at the close, which we cover in why valuation is the real quarter-end bottleneck. Where a liquidity discount sits in the stack is the same kind of policy choice — see where to apply DLOM.
Jolv encodes this policy in the product rather than in a document nobody reads: versioned and attributable changes, campaigns sealed once finalised, and an approval workflow before closing. See how a valuation campaign works.
Sources
- IPEV Board, International Private Equity and Venture Capital Valuation Guidelines, December 2025 edition, "Application of the Guidelines", §1.6 and Appendix 2 "Valuation Standards"
- Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers, OJ L 174, 1.7.2011, Article 19
- Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU, OJ L 83, 22.3.2013, Articles 67–71
- AMF, Summary of SPOT inspections on the valuation of unlisted holdings in private equity management companies, December 2018 (in French)
- Invest Europe, Investor Reporting Guidelines, January 2024
- ILPA, Due Diligence Questionnaire 2.0, November 2021, section 15 "Accounting / Valuation"