Katita Palamar and Brelen Jinkens of Cogent Partners recently published a corporate white paper describing how recent changes in FAS 157 requirements are going to affect LPs.
Excerpt:
Limited Partners have been struggling with how to apply FASB Standard 157 requirements for quite some time now. As a leading secondary market advisor to private equity LPs and a provider of private equity monitoring and diligence services, Cogent Partners has had numerous conversations on this subject with LPs and other market participants. It now seems that relief may be on the way, as the FASB acknowledges the difficulties in applying the complex FAS 157 requirements to private equity assets.
Interesting tidbits:
Fair value was a requirement before FAS 157. FAS 157 simply clarified that LPs could no longer just accept the NAVs provided by GPs.
The AICPAPractice Aid and Draft Issues Paper caused endless headaches for LPs. I would even go as far as saying that they made life impossible for LPs over the past couple years. I wonder how many hours were consumed trying to figure out a way to comply with what was put fourth in those documents.
FASB recently met to discuss possible revisions to the requirements. From the article, the Board decided that “…an investor entity would estimate that fair value of its interests in alternative investments using the net asset value as of the investor entity’s financial statement date, as long as the net asset value has been calculated in accordance with the investment companies Guide.” In short, the NAV can be used as fair value in most circumstances. This is fabulous news for LPs who were being told by their auditors and valuation advisors that they needed to revalue everything from the bottom up.
For roll-forwards, LPs can use an adjusted valuation (link this to some sort of glossary). Basically you need to adjust the valuation for cash flow and re-price public companies, if there are any, in the fund.
Bottom line:
This type of article is my favorite type of content: short and to the point with a meaningful (and practical) message. Plus it was good news for LPs, so it gets bonus points.
Cogent Research Bulletin No. 2: Good News for LPs on FAS 157
Katita Palamar and Brelen Jinkens of Cogent Partners recently published a corporate white paper describing how recent changes in FAS 157 requirements are going to affect LPs.
Excerpt:
Interesting tidbits:
Bottom line:
This type of article is my favorite type of content: short and to the point with a meaningful (and practical) message. Plus it was good news for LPs, so it gets bonus points.