Fund Valuation Policy Template (SEC Rule 2a-5, AIFMD)

Valuation Policy: [Manager name]

Written policy and procedures for determining the fair value of the investments of the funds and accounts an investment manager manages: scope and legal basis, governance and independence, valuation risks, methodologies by asset class, pricing sources and pricing service oversight, fair value triggers, models, the valuation cycle, testing, net asset value (NAV) calculation and error correction, escalation, board reporting, conflicts, records and review. Based on US SEC Rule 2a-5 (17 CFR 270.2a-5) and Rule 31a-4 for registered funds, the EU AIFMD (Directive 2011/61/EU, Article 19) with Commission Delegated Regulation (EU) No 231/2013 (Articles 67 to 74), and the UCITS Directive (2009/65/EC, Article 85), as of 2026-10. Industry guidance (IPEV Valuation Guidelines, 2025 edition) and accounting standards (IFRS 13, FASB ASC Topic 820) are cited by name only. Replace every [bracketed] value and every row marked Example. This is a document format, not legal, accounting or investment advice. Obtain the standard or law for the normative text.

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Contents

1. Purpose, scope and legal basis
2. Principles and definitions
3. Governance, roles and independence
4. Valuation risk assessment
5. Methodologies by asset class
6. Pricing sources and pricing service oversight
7. Fair value triggers and monitoring
8. Valuation models
9. Valuation cycle
10. Testing of methodologies
11. NAV calculation and error correction
12. Escalation, challenges and overrides
13. Reporting to the board and investors
14. Conflicts of interest
15. Records, policy review and training
16. Glossary and references
17. Standard and licence note

1. Purpose, scope and legal basis

1.1 Purpose

This policy sets how [Manager name] determines fair value for the investments of the vehicles listed in section 1.2, so that values are fair, consistent across vehicles and over time, independent of portfolio management, documented and testable. It supports accurate NAVs, fair treatment of investors who subscribe and redeem at those NAVs, correct fee calculations and reliable reporting.

1.2 Vehicles in scope

1.3 Legal and standards basis

Jurisdiction view as of 2026-10; check local law and fund documents.

2. Principles and definitions

Principles:

1. Exit price: fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, under current market conditions.
2. Market inputs first: use observable inputs where available and minimise unobservable inputs.
3. Consistency: apply the same methodology to the same type of asset across vehicles and over time; change a methodology only when the new one is equally or more representative of fair value, and record why.
4. Independence: portfolio managers provide information but do not determine, or effectively determine through substantial influence, the values of their holdings.
5. Calibration: where an investment was bought in an arm's-length transaction, calibrate the technique to the entry price and roll the calibrated inputs forward.
6. Documentation: every fair value is supported by a file that a competent person who was not involved could follow and reproduce.

3. Governance, roles and independence

3.1 Bodies and roles

3.2 Committee rules

3.3 External valuer

Where an external valuer performs the valuation function for an AIF, record how the AIFM has demonstrated the valuer's professional registration or rules of conduct, its professional guarantees and the delegation conditions (AIFMD Article 19(5); Delegated Regulation 231/2013 Article 73), the notification to the home competent authority (Article 19(7)) and that the valuer does not sub-delegate (Article 19(6)). Set out the information exchange with the valuer and the initial and periodic due diligence on it (Delegated Regulation Article 67(3)).

4. Valuation risk assessment

Rate likelihood and impact on the scale in Risk Methodology (compliance/risk-methodology) and record residual risks in the Risk Register (compliance/risk-register).

5. Methodologies by asset class

For each private holding, the valuation file contains: the technique and why it fits, the calibration at entry, the comparable set and its selection criteria, every unobservable input with its source, the adjustments (control, liquidity, size) and the reasons, the enterprise-to-equity bridge, and a sensitivity of value to the most significant input. Discounted cash flow inputs follow Valuation Report (finance/valuation-report); the selection of comparables follows Comparable Companies Analysis (finance/comparable-companies-analysis).

Enterprise to equity bridge used for private equity holdings:

Example: EV is 9.0x LTM EBITDA of USD 7.7m = USD 69.3m; net debt USD 22.6m; no debt-like items or senior instruments; equity value USD 46.7m; the fund owns 60% of a single class, so the holding is 46.7 x 60% = USD 28.02m, rounded to USD 28.0m (PC-004 Tidewell Foods in the LP Quarterly Report, finance/lp-quarterly-report). Show the sensitivity next to the value: each 0.5x change in the multiple moves EV by 0.5 x 7.7 = USD 3.85m and the holding by 3.85 x 60% = USD 2.31m.

6. Pricing sources and pricing service oversight

6.1 Source hierarchy

6.2 Pricing service due diligence

Example tolerance: an investment grade bond price differing by more than 2% between the primary and secondary service, or moving more than 3% day on day without a market reason, is investigated before NAV release.

7. Fair value triggers and monitoring

8. Valuation models

For each model, document the reason for its choice, data, assumptions and their rationale, and limitations. Validation follows Model Validation Report (ai-data/model-validation-report) and the firm's Model Risk Management Policy (finance/model-risk-management-policy). Any use of AI or automated tools in valuation (for example to extract data from company reports or to suggest comparables) is recorded as a model or tool in this inventory, with human review of every output used.

9. Valuation cycle

Daily or monthly NAV vehicles follow the same sequence on a compressed timetable, with Level 3 values carried between committee meetings only if no trigger in section 7 has occurred.

10. Testing of methodologies

Back-test deviation for realisation $i$, with sale price $P_i$ and last fair value $FV_i$, and the mean absolute deviation over $n$ realisations:

MAD = (9.09 + 7.14 + 3.09 + 4.74) / 4 = 6.02%. Three of four deviations are positive: record whether this shows a conservative bias in private equity marks and whether the committee will act on it. A persistent positive bias at exit is a finding, not a comfort.

11. NAV calculation and error correction

Error impact on an investor, with $N$ units transacted at an incorrect NAV per unit $NAV_{wrong}$ instead of $NAV_{right}$:

A positive impact on a redemption means the investor was overpaid and the fund was harmed; on a subscription it means the investor paid too much.

12. Escalation, challenges and overrides

13. Reporting to the board and investors

Board-designated material matter period Example: two business days.

14. Conflicts of interest

VCN IDs are this policy's checklist of valuation conflicts. The conflicts themselves are recorded, rated and controlled in the Conflicts of Interest Register (compliance/conflicts-of-interest-register) under its COI-NNN IDs, so that one conflict never carries two different register numbers.

15. Records, policy review and training

15.1 Records

15.2 Policy review

Review this policy at least annually and before any vehicle invests in a new type of asset or follows a new strategy not covered by it. The risk management function reviews the policy and supports changes. Senior management approves changes; registered fund boards receive material changes in the next quarterly report.

15.3 Training

15.4 Common errors and review points

Reviewers of this policy, internal or external, tend to find the same weaknesses. Check for each of them before approval.

• Methodology without inputs. Section 5 names a technique but not the source of each input, the comparable set, the adjustment range or the person who approves a change. Rewrite until a second valuer could reproduce the value from the file alone.
• Calibration skipped. A Level 3 holding bought in an arm's length transaction should value at the transaction price on day one. If the model gives a different number, record the calibration adjustment and carry it forward until evidence says it no longer applies.
• Stale marks at quarter end. A private holding kept at cost or at the last round price for several quarters is a finding unless the file shows why nothing has changed. Use the triggers in section 7 to force a review.
• Back-testing that only looks at good exits. Test every realisation, including write-offs and partial sales, and keep the bias analysis in section 10 even when it is uncomfortable.
• Overrides without evidence. Every override in section 12 cites the information that the vendor or model did not have, and the committee minute that approved it.
• Conflicts treated as theory. Section 14 is credible only when it names real situations at the firm and links each to a register entry.

When the policy changes, record the reason, the expected effect on values and the effective date, and tell the board (and, for EU AIFs, investors and the competent authority where required) before the first valuation under the new method. Run the old and new method side by side for at least one cycle where the change is material, and report the difference.

16. Glossary and references

References (obtain current versions):

• 17 CFR 270.2a-5, fair value determination and readily available market quotations (adopted 2020, 86 FR 807, 2021-01-06), eCFR.
• 17 CFR 270.31a-4, records relating to fair value determinations, eCFR.
• 17 CFR 275.206(4)-7, compliance procedures and practices, eCFR.
• Directive 2011/61/EU (AIFMD), Articles 19, 22 and 23, as amended by Directive (EU) 2024/927 (applies from 2026-04-16, check national transposition), EUR-Lex.
• Commission Delegated Regulation (EU) No 231/2013, Articles 67 to 74, EUR-Lex.
• Directive 2009/65/EC (UCITS), Article 85, EUR-Lex.
• IPEV International Private Equity and Venture Capital Valuation Guidelines, 2025 edition; IFRS 13 Fair Value Measurement; FASB ASC Topic 820 (names only).
• Related templates: LP Quarterly Report (finance/lp-quarterly-report), Manager Due Diligence Report (finance/manager-due-diligence-report), Valuation Report (finance/valuation-report), Model Risk Management Policy (finance/model-risk-management-policy), Annual Compliance Review (compliance/annual-compliance-review).

Standard and licence note

Based on public law: SEC rules in 17 CFR Parts 270 and 275 (US government works) and EU legislation from EUR-Lex (AIFMD, Delegated Regulation (EU) No 231/2013 and the UCITS Directive), reused with acknowledgement under Commission Decision 2011/833/EU and summarised in original wording. The IPEV Valuation Guidelines, IFRS 13 and FASB ASC Topic 820 are cited by name only; no text, definition or example from them is reproduced or paraphrased. This template is not affiliated with or endorsed by the SEC, the European Commission, IPEV, the IFRS Foundation or the FASB. All names and figures in the examples are fictional. This template is original text written for this collection. Check the current official versions of each rule and standard before use. Template licence: MIT.