Key Takeaways
- • The FCA published findings on March 5, 2025, from a multi-firm assessment covering 36 firms managing approximately £3 trillion in private market assets, revealing significant governance and valuation practice weaknesses across the private equity, venture capital, private debt, and infrastructure sectors.
- • The review identified a critical absence of consistent valuation standards across private market participants, creating scope for conflicts of interest, lack of transparency, inconsistency, and potential asset misvaluations that expose investors to harm through inaccurate performance reporting.
- • The FCA's findings highlight weaker governance practices and independence concerns, particularly regarding the use of third-party valuation advisers, signaling that UK-authorized firms must strengthen controls to identify, document, and assess valuation-related conflicts of interest.
- • The FCA's regulatory approach aligns with frameworks adopted by international regulators, including the US Securities and Exchange Commission, suggesting potential for coordinated global scrutiny of private market valuation practices.
- • The review focuses exclusively on UK-authorized firms operating under MiFID, alternative investment fund managers, and investment advisors, excluding UCITS funds, with limited direct impact on managers outside the UK but broader implications for regulatory expectations across jurisdictions.
Summary
On March 5, 2025, the UK Financial Conduct Authority published comprehensive findings from its multi-firm assessment of governance and valuation practices across the private market sector. The review examined 36 firms collectively managing approximately £3 trillion in assets, with scope encompassing UK-authorized managers operating in private equity, venture capital, private debt, and infrastructure. The assessment covered firms regulated under the EU's Markets in Financial Instruments Directive as implemented in the UK, alternative investment fund managers, and investment advisors, though UCITS funds were excluded from the scope.
The FCA's core finding addresses a fundamental structural weakness in the private markets industry: the absence of a consistent valuation standard applicable across market participants. This fragmentation has created divergence in standards and reliance on judgment-based strategies that leave scope for conflicts of interest, valuation opacity, inconsistency, and potential asset misvaluations. The regulatory body emphasized that robust valuation practices are essential for fairness and confidence in private markets, particularly given investor exposure to harm through inaccurate performance information when valuations become stale or manipulated.
A primary concern identified in the review centers on the independence and governance of valuation processes, specifically regarding the use of third-party valuation advisers. The FCA expects firms to identify, document, and comprehensively assess potential valuation-related conflicts, evaluate their significance, and implement appropriate mitigating actions. The findings underscore weaker governance practices among certain surveyed firms, indicating that controls over valuation advisor relationships require strengthening across the sector.
The FCA's regulatory approach reflects international alignment on private market valuation oversight. The regulator notes that its findings are largely consistent with those of regulators in other jurisdictions, with themes paralleling the US Securities and Exchange Commission's approach to similar valuation governance issues. While the FCA's direct authority is limited to UK-authorized firms, the broader implications suggest potential for coordinated regulatory expectations across jurisdictions.
The review's scope limitation to UK-authorized firms means direct regulatory impact will be concentrated domestically, with limited enforcement reach to managers located outside the UK. However, the identification of good practices and clear articulation of the FCA's expectations provides guidance for firms seeking to establish credible operations within the UK's increasingly scrutinized private markets ecosystem.
The FCA's core finding addresses a fundamental structural weakness in the private markets industry: the absence of a consistent valuation standard applicable across market participants. This fragmentation has created divergence in standards and reliance on judgment-based strategies that leave scope for conflicts of interest, valuation opacity, inconsistency, and potential asset misvaluations. The regulatory body emphasized that robust valuation practices are essential for fairness and confidence in private markets, particularly given investor exposure to harm through inaccurate performance information when valuations become stale or manipulated.
A primary concern identified in the review centers on the independence and governance of valuation processes, specifically regarding the use of third-party valuation advisers. The FCA expects firms to identify, document, and comprehensively assess potential valuation-related conflicts, evaluate their significance, and implement appropriate mitigating actions. The findings underscore weaker governance practices among certain surveyed firms, indicating that controls over valuation advisor relationships require strengthening across the sector.
The FCA's regulatory approach reflects international alignment on private market valuation oversight. The regulator notes that its findings are largely consistent with those of regulators in other jurisdictions, with themes paralleling the US Securities and Exchange Commission's approach to similar valuation governance issues. While the FCA's direct authority is limited to UK-authorized firms, the broader implications suggest potential for coordinated regulatory expectations across jurisdictions.
The review's scope limitation to UK-authorized firms means direct regulatory impact will be concentrated domestically, with limited enforcement reach to managers located outside the UK. However, the identification of good practices and clear articulation of the FCA's expectations provides guidance for firms seeking to establish credible operations within the UK's increasingly scrutinized private markets ecosystem.
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