Portfolio Valuation Services Unlocking Insights: Swedish Market Survey

Executive Summary

Established frameworks are present in unlisted asset valuations among Participants, however with varying degree of sophistication and adherence to IPEV Guidelines highlighting opportunities amidst rising regulatory pressure

The survey includes a diverse range of Investment Firms, with a slight emphasis on Private Equity Firms and Investment Companies, along with representation from Family Offices, Infrastructure Funds, and Venture Capital Firms. Overall, we interviewed 27 Investment Firms. The survey reveals that around half of the companies perform quarterly portfolio valuations, with annual and semi-annual valuations being less common. Around 12% conduct valuations on an ad hoc basis, influenced by factors such as capital events or reporting timelines. New investments typically follow a grace period of several quarters or up to one year before revaluation, unless there are significant developments.

In terms of the technical aspects of valuation work, Participants predominantly use the market approach, specifically multiples derived from comparable publicly listed companies and precedent transactions. Many incorporate some form of calibration to account for significant events and thereby align valuations with current market conditions. Recent capital rounds or secondary transactions are sometimes utilised as benchmarks, particularly when these transactions occur in proximity to the valuation date. Few Participants explicitly adjust multiples using premiums or discounts relative to peers in their ongoing valuations, e.g., some apply a fixed discount as a conservative measure. Instead, premiums/discounts are primarily used as part of a sanity-checking process, not as the decisive factor that determines the valuation. Over-the-counter (OTC) secondary trading of unlisted shares plays a minimal role in the valuation process. Infrastructure firms prefer the income approach, such as Discounted Cash Flow (DCF) and Dividend Discount Model (DDM).

Smaller firms often have less well-defined valuation policies due to their limited scale, and resource constraints. Many Participants adopt a 'blended' approach to valuation guidelines, drawing inspiration from the IPEV Guidelines but modifying them with internal practices tailored to individual portfolio companies. Private Equity Firms primarily use this blended approach, integrating firm-specific or proxy guidelines to manage diverse investment types and sectors, while adhering to IPEV as a foundational framework due to regulatory scrutiny.

The key takeaways from this survey are that the lion's share of the Participants have an established framework and process in terms of ongoing valuations of their unlisted assets. However, the degree of sophistication, adherence to IPEV Guidelines and frequency vary significantly among Participants. Although the market approach via multiples derived from comparable publicly listed companies dominates in terms of valuation approach, very few Participants include ongoing evaluations of premiums/discounts as an integral part of their valuations. This may be an area worth exploring for Participants given the trend of increased regulatory pressure across the investment sector with more stringent requirements for the valuation of unlisted assets. Nonetheless, this can be seen as a positive catalyst, encouraging firms to enhance their methodologies and processes and maintain high standards in their valuation practices.