# 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.

<!--
Guidance: How to use this template
- Purpose: one policy, approved by senior management and, for
  registered funds, overseen by the fund board, that tells valuation
  staff exactly how each type of investment is valued, by whom, how it
  is checked and what to do when something goes wrong.
- Fill sections 1 to 3 first (scope, principles, governance): they
  decide which legal regime applies to each vehicle. Then write the
  asset class methodologies (section 5) for every asset type the funds
  may hold. Under the AIFMD Delegated Regulation, a fund should not
  invest in a new type of asset before a methodology for it exists.
- The worked example is fictional: Kestrel Bay Capital (a fictional
  SEC-registered investment adviser) is valuation designee for a
  registered closed-end fund, manages private funds, and acts as
  delegated portfolio manager for an EU alternative investment fund
  whose AIFM is a third party.
- Keep the policy (what and why) separate from desk procedures (how,
  step by step). Procedures may sit in annexes or in a Standard
  Operating Procedure (`ops/sop`).
- Common pitfall: a policy that names methodologies but not the inputs,
  sources, tolerances and approvers, so it cannot be tested.
-->

## Document control

<!-- Guidance: The policy is a controlled document with a named owner and approvers. Board approval or acknowledgement is recorded for registered funds. Material changes are reported to the board and, where the regime requires, to investors and the competent authority. -->

| Field | Value |
|---|---|
| Document ID | [POL-VAL-001] |
| Entity | [Manager legal name] (*Example:* Kestrel Bay Capital) |
| Vehicles in scope | [See section 1.2] |
| Version | [2.0] |
| Status | [Draft / Approved / Superseded] |
| Owner | [@head-of-valuation] |
| Approvers/reviewers | [@valuation-committee-chair], [@chief-compliance-officer], [@chief-risk-officer], [@cfo] |
| Board approval (registered funds) | [Board name], meeting YYYY-MM-DD |
| Effective date | YYYY-MM-DD |
| Last updated | YYYY-MM-DD |
| Next scheduled review | YYYY-MM-DD (at least annually, see section 15) |
| Classification | Internal; available to investors and regulators on request |
| Related documents | [Valuation procedures], [Pricing source hierarchy], [Model inventory], [Error correction procedure] |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| Valuation committee | [@chair] | [Approve / Return] | YYYY-MM-DD |
| Chief compliance officer | [@name] | [Approve / Return] | YYYY-MM-DD |
| Senior management (managing board) | [@name] | [Approve / Return] | YYYY-MM-DD |
| Fund board (registered funds) | [Minute reference] | [Approve designation / Acknowledge] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change summary |
|---|---|---|---|
| 1.0 | YYYY-MM-DD | [@name] | First approved policy |
| 2.0 | YYYY-MM-DD | [@name] | *Example:* Added private credit methodology and external valuer process for EU AIF |
| 2.1 | YYYY-MM-DD | [@name] | *Example:* Annual review; tolerance for investment grade bonds changed from 3% to 2% |

## Contents

<!-- Guidance: Keep this list aligned with the headings. -->

1. [Purpose, scope and legal basis](#1-purpose-scope-and-legal-basis)
2. [Principles and definitions](#2-principles-and-definitions)
3. [Governance, roles and independence](#3-governance-roles-and-independence)
4. [Valuation risk assessment](#4-valuation-risk-assessment)
5. [Methodologies by asset class](#5-methodologies-by-asset-class)
6. [Pricing sources and pricing service oversight](#6-pricing-sources-and-pricing-service-oversight)
7. [Fair value triggers and monitoring](#7-fair-value-triggers-and-monitoring)
8. [Valuation models](#8-valuation-models)
9. [Valuation cycle](#9-valuation-cycle)
10. [Testing of methodologies](#10-testing-of-methodologies)
11. [NAV calculation and error correction](#11-nav-calculation-and-error-correction)
12. [Escalation, challenges and overrides](#12-escalation-challenges-and-overrides)
13. [Reporting to the board and investors](#13-reporting-to-the-board-and-investors)
14. [Conflicts of interest](#14-conflicts-of-interest)
15. [Records, policy review and training](#15-records-policy-review-and-training)
16. [Glossary and references](#16-glossary-and-references)
17. [Standard and licence note](#standard-and-licence-note)

## 1. Purpose, scope and legal basis

<!-- Guidance: Say which vehicles the policy covers and which legal regime applies to each. Questions: who is legally responsible for valuation of each vehicle (board, AIFM, management company, adviser)? Pitfall: one policy applied to all vehicles without noting where a fund's own documents or a third-party AIFM's policy prevails. -->

### 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

| Vehicle | Type | Who is responsible for valuation | Regime |
|---|---|---|---|
| Kestrel Bay Income Fund *Example* | US registered closed-end fund | Fund board; designated Kestrel Bay Capital as valuation designee on YYYY-MM-DD | Rule 2a-5 and Rule 31a-4 |
| Kestrel Bay Growth Partners III, L.P. *Example* | US private fund | Kestrel Bay Capital as manager under the LPA | LPA; adviser fiduciary duty and compliance programme (17 CFR 275.206(4)-7) |
| [EU AIF name] *Example* | EU AIF, AIFM is [third-party AIFM] | AIFM; Kestrel Bay Capital is delegated portfolio manager and provides inputs only | AIFMD Article 19 and Delegated Regulation 231/2013 Articles 67 to 74; the AIFM's policy prevails |
| Separate accounts | Client mandates | As set by each investment management agreement | Contract |

### 1.3 Legal and standards basis

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

| Source | What it requires, in summary | Policy section |
|---|---|---|
| Rule 2a-5 (17 CFR 270.2a-5)(a) | Good faith fair value requires: assessing and managing valuation risks, establishing and applying methodologies, testing them, and overseeing pricing services | 4 to 10 |
| Rule 2a-5(b) | Board may designate a valuation designee, which reports quarterly and annually and notifies material matters within the period set by the board, not later than five business days; responsibilities specified and fair value segregated from portfolio management | 3, 13 |
| Rule 2a-5(c) | A market quotation is readily available only if it is an unadjusted quoted price in active markets for identical investments accessible at the measurement date, and reliable | 2 |
| Rule 31a-4 (17 CFR 270.31a-4) | Keep documentation supporting fair value determinations for at least six years, the first two in an easily accessible place; keep board reports and the list of designated investments | 15 |
| AIFMD Article 19 | Proper and independent valuation; at least annual valuation and NAV; external valuer or functionally independent internal function; AIFM remains liable | 3, 9 |
| Delegated Regulation 231/2013 Articles 67 to 74 | Written policies, models, consistency, annual review, review of individual values, NAV calculation, external valuer guarantees, frequency for open-ended AIFs | 5 to 11, 15 |
| UCITS Directive Article 85 | Valuation and pricing rules are set by national law or the fund rules | 1.2 |
| IFRS 13 / ASC Topic 820 | Fair value measurement and hierarchy for financial reporting (names only) | 2 |
| IPEV Valuation Guidelines, 2025 edition | Industry guidance for private capital, effective for periods beginning on or after 2026-04-01 (name only) | 5 |

## 2. Principles and definitions

<!-- Guidance: State the principles the committee will use to decide hard cases. Keep definitions aligned with the accounting framework the funds report under. Pitfall: using "fair value" for both market prices and model values, so that it is unclear when the fair value process applies. -->

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.

| Term | Meaning in this policy |
|---|---|
| Readily available market quotation | As defined in Rule 2a-5(c); for non-US vehicles, the equivalent active-market price under the fund's accounting framework |
| Fair value (in the Rule 2a-5 sense) | The value of an investment for which market quotations are not readily available |
| Level 1, 2, 3 | Fair value hierarchy categories under IFRS 13 and ASC Topic 820, by observability of inputs |
| Valuation designee | The adviser (or fund officers) designated by a registered fund board under Rule 2a-5(b) |
| Valuation function | The persons who determine fair value, independent of portfolio management |
| Material matter | Any event that materially affects the fair value of the designated portfolio, including significant deficiencies, material weaknesses and material NAV errors |

## 3. Governance, roles and independence

<!-- Guidance: Name the bodies and roles, what each decides and how independence is achieved. Questions: who chairs the committee, who has a vote, can portfolio managers attend? Pitfall: a valuation committee where the investment team holds the majority of votes. -->

### 3.1 Bodies and roles

| Role | Responsibility | Independence |
|---|---|---|
| Fund board (registered funds) | Oversees the valuation designee, approves designation, receives reports | Majority of independent directors on the designated committee |
| Senior management | Approves this policy, models and material changes | Accountable for the valuation framework |
| Valuation committee | Approves fair values of Level 3 investments, methodology changes, overrides and price challenges outcomes | Chaired by [CFO]; voting members from finance, risk and compliance; portfolio managers attend without a vote |
| Valuation function (valuation team) | Prepares valuations, runs price checks, maintains files | Reports to [CFO], not to the chief investment officer |
| Risk management function | Reviews this policy and supports methodology choices (Delegated Regulation 231/2013 Article 70(3) for AIFs) | Independent of portfolio management |
| Compliance | Monitors adherence, conflicts and recordkeeping | Independent |
| Portfolio managers and analysts | Provide information on companies and markets; flag events | No vote, no authority to set values |
| External valuer (where appointed) | Performs or reviews valuations under engagement terms | Independent of the fund, manager and their close links (AIFMD Article 19(4)(a)) |
| Fund administrator | Calculates NAV, applies prices, performs independent checks | Contractually independent |
| Auditor | Audits financial statements including fair values | External |

### 3.2 Committee rules

| Item | Rule |
|---|---|
| Quorum | [Three voting members, including the chair or deputy] |
| Frequency | [Monthly, and ad hoc for triggers in section 7] |
| Decisions | [Majority of voting members; chair has casting vote] |
| Minutes | Record attendees, materials, decisions, dissent and actions |
| Conflicts | Members declare conflicts per holding and abstain |

### 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

<!-- Guidance: Rule 2a-5(a)(1) requires periodic assessment and management of material valuation risks, including conflicts. Keep a register reviewed at least annually and on major market events. Pitfall: listing generic risks without the funds' actual exposures and controls. -->

| ID | Risk | Exposure | Likelihood | Impact | Controls | Owner |
|---|---|---|---|---|---|---|
| VR-001 *Example* | Stale or single-source prices on high-yield bonds | Kestrel Bay Income Fund, 18% of NAV | Medium | Medium | Secondary vendor comparison, stale price report (section 10) | [@valuation-lead] |
| VR-002 *Example* | Unobservable inputs for private loans | Income Fund 22% of NAV, Level 3 | High | High | Committee approval, quarterly third-party review of 25% of positions | [@valuation-lead] |
| VR-003 *Example* | Portfolio manager influence on private equity marks | Growth Partners III, 100% Level 3 | Medium | High | No PM vote, evidence-based inputs, back-testing | [@cfo] |
| VR-004 *Example* | Performance fee and carried interest incentive to overstate values | All funds with fees on NAV or gains | Medium | High | Section 14 controls, independent committee | [@cco] |
| VR-005 *Example* | Foreign market closures before NAV strike | Listed non-US equities | Medium | Low | Fair value adjustment trigger (section 7) | [@valuation-lead] |
| VR-006 *Example* | Model error in discounted cash flow tools | All Level 3 | Low | High | Independent model validation (section 8) | [@risk] |

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

<!-- Guidance: For every asset type the funds may hold, state the primary technique, the cross-check, key inputs, sources, frequency and approver. Rule 2a-5(a)(2) asks for key inputs and assumptions by asset class; Delegated Regulation Article 67(1) asks for inputs, models and source selection criteria. Pitfall: a single "market approach" line covering very different instruments. -->

| Asset class | Typical level | Primary technique | Cross-check | Key inputs and sources | Frequency | Approver |
|---|---|---|---|---|---|---|
| Listed equities | 1 | Official closing price on primary exchange | Fair value adjustment model when triggered (section 7) | Exchange feed via [vendor] | Each NAV | Valuation team |
| Government and investment grade bonds | 2 | Evaluated price from primary pricing service | Secondary vendor; tolerance 2% *Example* | [Vendor A], [Vendor B] | Each NAV | Valuation team |
| High-yield and illiquid bonds | 2 or 3 | Evaluated price or broker quotes (at least two) | Recent trades, comparable bonds | [Vendors], [brokers] | Each NAV | Valuation team; committee if single source |
| Exchange-traded derivatives | 1 | Settlement price | None | Exchange | Each NAV | Valuation team |
| OTC derivatives | 2 | Discounted cash flow using market curves; option models | Counterparty valuation and collateral calls | Curves from [vendor] | Daily | Valuation team |
| Private loans (direct lending) | 3 | Yield (discounted cash flow at a market yield) calibrated to origination | Third-party review sample; recovery analysis for stressed loans | Loan cash flows, market spreads, credit metrics | Quarterly; monthly for watch list | Valuation committee |
| Private equity (controlling or significant stakes) | 3 | Market approach (EV multiples of comparable companies or transactions) calibrated to entry | Income approach (discounted cash flow); recent transactions | Company financials, comparable set, net debt | Quarterly | Valuation committee |
| Early-stage equity | 3 | Calibration to the price of a recent investment, adjusted for milestones and market movements | Scenario analysis | Round terms, milestones, market data | Quarterly | Valuation committee |
| Real estate | 3 | Income approach by external appraiser | Comparable sales | Appraisal reports | Quarterly roll-forward, annual full appraisal | Valuation committee |
| Interests in other funds | 3 | Reported NAV of the underlying fund, adjusted for known events and cash flows since its date | Secondary market indications | Underlying manager statements | Quarterly | Valuation committee |

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:

$$
\text{Equity value} = EV - \text{Net debt} - \text{Debt-like items} - \text{Senior instruments}
$$

$$
\text{Fund's value} = \text{Equity value attributable to the fund's instrument class} \times \text{Ownership share of that class}
$$

*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

<!-- Guidance: Rule 2a-5(a)(4) requires a process for approving, monitoring and evaluating each pricing service and for price challenges. Delegated Regulation Article 67(1) asks for independent sources wherever possible. Pitfall: a pricing hierarchy that lets the trading desk choose the broker quote. -->

### 6.1 Source hierarchy

| Priority | Source | Use |
|---|---|---|
| 1 | Exchange closing or settlement price | Listed instruments |
| 2 | Primary approved pricing service | Bonds, loans with vendor coverage |
| 3 | Secondary approved pricing service | Comparison and fallback |
| 4 | Independent broker quotes (minimum [two]) collected by the valuation team | Instruments without vendor coverage |
| 5 | Valuation committee fair value | Level 3 and where sources fail |

### 6.2 Pricing service due diligence

| Step | Content | Frequency |
|---|---|---|
| Initial approval | Methodology, inputs, coverage, controls, challenge process, independence, business continuity | Before use |
| Ongoing monitoring | Daily tolerance exceptions, challenge outcomes, stale prices | Daily, summarised monthly |
| Annual evaluation | Methodology changes, accuracy (back-testing results), service levels, control reports | Annual |
| Price challenge | Valuation team sends evidence, records the response and the outcome | As needed; target response [two] business days |

*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

<!-- Guidance: Rule 2a-5(a)(2)(iii) asks for monitoring of circumstances that require fair value. List the triggers, who monitors them and what happens. Pitfall: relying on portfolio managers to tell the valuation team when a price is wrong. -->

| ID | Trigger | Monitored by | Action |
|---|---|---|---|
| FVT-01 | Market close in a foreign market before the NAV strike and an index move above [x]% after that close | Valuation team, automated | Apply fair value adjustment factors from [model] |
| FVT-02 | Trading halt, suspension or delisting | Valuation team | Committee fair value within [one] business day |
| FVT-03 | Price unchanged for [five] business days (stale) | Stale price report | Investigate; replace source or fair value |
| FVT-04 | Single source only | Daily exception report | Committee approval if over [x]% of NAV |
| FVT-05 | Company event (default, covenant breach, refinancing, major contract loss, fraud allegation) | PM notification plus news monitoring | Interim review of the Level 3 value |
| FVT-06 | Market dislocation (sector index move above [x]% in a quarter) | Risk team | Re-run Level 3 valuations off-cycle |

## 8. Valuation models

<!-- Guidance: Delegated Regulation Article 68 requires models to be explained, justified, validated by an independent competent person before use and approved by senior management. Treat valuation models as models under your model risk framework. Pitfall: spreadsheets used for years with no owner and no validation. -->

| Model ID | Purpose | Owner | Validation | Approval | Next review |
|---|---|---|---|---|---|
| VM-001 *Example* | Loan yield valuation | Valuation team | Independent validation by risk team, YYYY-MM-DD | Senior management, YYYY-MM-DD | YYYY-MM-DD |
| VM-002 *Example* | Foreign equity fair value adjustment factors | Vendor model, overseen by valuation team | Vendor documentation review and back-test | Valuation committee | YYYY-MM-DD |
| VM-003 *Example* | Private equity multiples workbook | Valuation team | Spreadsheet control review and independent rebuild of two holdings | Senior management | YYYY-MM-DD |

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

<!-- Guidance: Show who does what by when, so that deadlines do not erode independence. Delegated Regulation Article 67(2) asks for the time for closing the books and the valuation frequency. Pitfall: the committee receiving papers on the morning it must approve. -->

| Step | Timing *Example* (quarter end Q) | Responsible |
|---|---|---|
| Book close for valuation | Q + 0 | Administrator |
| Collect company data and market inputs | Q + 1 to Q + 10 business days | Valuation team |
| Draft Level 3 valuations and files | Q + 15 | Valuation team |
| Independent review or external valuer review sample | Q + 20 | Reviewer or external valuer |
| Valuation committee | Q + 25 | Committee |
| NAV finalisation | Q + 30 | Administrator |
| Board or investor reporting | Per section 13 | Valuation function, compliance |

```mermaid
flowchart LR
  A[Book close] --> B[Inputs collected]
  B --> C[Draft valuations]
  C --> D[Independent review]
  D --> E{Committee approves?}
  E -- No --> C
  E -- Yes --> F[NAV finalised]
  F --> G[Reporting and records]
```

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

<!-- Guidance: Rule 2a-5(a)(3) requires identified testing methods and minimum frequencies. Delegated Regulation Article 71(3) lists checks on the reasonableness of individual values. Pitfall: back-testing only the exits that went well. -->

| Test ID | Method | Scope | Minimum frequency | Threshold for investigation |
|---|---|---|---|---|
| TST-01 | Back-test: compare realised sale or repayment price with the last fair value before the sale | All realisations | Quarterly, summarised annually | Absolute deviation above 10% *Example* |
| TST-02 | Calibration: compare model value at entry with transaction price | All new Level 3 investments | At entry | Any unexplained difference |
| TST-03 | Vendor comparison: primary against secondary service | All vendor-priced bonds | Daily | Section 6.2 tolerance |
| TST-04 | Stale price analysis | All holdings | Weekly | Section 7 FVT-03 |
| TST-05 | Third-party valuation review | 25% of Level 3 value each quarter, rotating, all holdings each year *Example* | Quarterly | Value outside reviewer's range |
| TST-06 | Day-one gain or loss review | New Level 3 holdings | At first valuation | Any unexplained gain |

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:

$$
d_i = \frac{P_i - FV_i}{FV_i}, \qquad \text{MAD} = \frac{1}{n}\sum_{i=1}^{n} |d_i|
$$

| Realisation | Last fair value | Price realised | Deviation |
|---|---|---|---|
| PC-001 equity sale *Example* | 55.00 | 60.00 | +9.09% |
| PC-003 partial sale, two tranches combined (2026-06-30 and 2026-09-10) *Example* | 28.00 | 30.00 | +7.14% |
| Loan L-014 repayment *Example* | 9.70 | 10.00 | +3.09% |
| Bond B-221 sale *Example* | 4.85 | 4.62 | -4.74% |

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

<!-- Guidance: Delegated Regulation Article 72 asks that NAV per unit is calculated on each issue or redemption and at least annually, that procedures are documented and regularly verified, and that remedial procedures exist for incorrect NAVs. Registered funds follow their board-approved error policy. Pitfall: a materiality threshold chosen after the error is found. -->

| Item | Policy |
|---|---|
| NAV frequency | [Daily / monthly / quarterly] per vehicle, and on each subscription or redemption |
| NAV calculator | [Administrator name]; valuation function provides Level 3 values |
| Verification | Administrator independent checks; valuation team review of price changes over [x]% |
| Units in issue | Reconciled to the register at each NAV |
| Error materiality threshold | *Example:* 0.50% of NAV for fixed income vehicles, 1.00% for equity vehicles; a firm policy choice, not a regulatory figure; check national rules and fund documents |
| Correction | Errors above threshold: recalculate affected NAVs, compensate affected investors and the fund, report to the board, auditor and, where required, the regulator |
| Errors below threshold | Corrected prospectively, logged and reported quarterly |

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

$$
\text{Impact} = N \times (NAV_{wrong} - NAV_{right})
$$

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

<!-- Guidance: Delegated Regulation Article 67(2)(d) and Article 71(4) ask for escalation channels for differences in values. Describe who can challenge a value, how and who decides. Pitfall: overrides approved by email without a record of the evidence. -->

| Situation | First step | Escalation | Final decision |
|---|---|---|---|
| Portfolio manager disagrees with a value | Written submission with evidence to valuation team | Valuation committee | Committee (PM has no vote) |
| Pricing service value appears wrong | Price challenge (section 6.2) | Head of valuation | Committee if unresolved by NAV deadline |
| Administrator disagrees with a value | Reconciliation meeting | CFO | Committee |
| External valuer and AIFM disagree | Documented meeting | AIFM senior management | AIFM (remains responsible under AIFMD Article 19(10)) |
| Override of a vendor price | Override request with evidence | Committee approval | Committee; logged in override register |

| Override ID | Date | Instrument | Vendor value | Approved value | Reason | Approved by |
|---|---|---|---|---|---|---|
| OVR-031 *Example* | 2026-09-30 | Bond B-305 | 92.50 | 88.00 | Issuer missed coupon after vendor cut-off | Valuation committee |

## 13. Reporting to the board and investors

<!-- Guidance: Rule 2a-5(b)(1) sets the minimum content of the valuation designee's quarterly and annual reports and the prompt notice of material matters. For private funds and AIFs, investor reporting follows fund documents and AIFMD Articles 22 and 23. Pitfall: reports that list values without the judgements behind them. -->

| Report | Recipient | Frequency | Content |
|---|---|---|---|
| Quarterly valuation report | Fund board (registered funds) | At least quarterly | Materials the board requested; material changes in valuation risks and conflicts; material changes to or deviations from methodologies; material changes or events in pricing service oversight |
| Annual assessment | Fund board | At least annually | Adequacy and effectiveness of the fair value process, testing results summary (section 10), adequacy of resources and changes in roles |
| Material matter notice | Fund board | Within the period set by the board, not later than five business days after the valuation designee becomes aware | Significant deficiency, material weakness, material NAV error or other matter materially affecting fair value, with follow-up |
| Valuation disclosure | Investors in AIFs | Before investment and on material change | Valuation procedure and pricing methodology, including hard-to-value assets (AIFMD Article 23(1)(g)) |
| Quarterly fund report | LPs of private funds | Quarterly per LPA | Valuation methodology and changes (see LP Quarterly Report, `finance/lp-quarterly-report`) |
| Committee minutes summary | Senior management | Monthly | Decisions, overrides, challenges, exceptions |

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

## 14. Conflicts of interest

<!-- Guidance: Rule 2a-5(a)(1) names conflicts as a valuation risk. List the conflicts that could bias values and the control for each. Pitfall: ignoring conflicts that flow from fees, fundraising and cross-fund transactions. -->

| ID | Conflict | Control | Register entry *Example* |
|---|---|---|---|
| VCN-01 | Management fees based on NAV | Independent committee; testing in section 10 | COI-008 |
| VCN-02 | Performance fees or carried interest based on unrealised gains | No PM vote; external review sample; back-testing bias analysis | COI-008 |
| VCN-03 | Fundraising for a successor fund while reporting interim performance | Compliance review of marks used in marketing; no off-cycle mark-ups before a raise without committee approval | [COI-0NN] |
| VCN-04 | Cross trades or transfers between vehicles, and investments by more than one fund in the same company | Independent price from external valuer; compliance approval | COI-009, COI-011 |
| VCN-05 | Holdings in companies where staff have personal interests | Declarations and abstention | COI-004, COI-010 |
| VCN-06 | Depositary also acting as external valuer (EU AIFs) | Only with functional and hierarchical separation and disclosure (AIFMD Article 19(4)) | [COI-0NN] |

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

<!-- Guidance: Records must let a reviewer reconstruct each fair value. The policy is reviewed at least annually and before a new strategy or asset type (Delegated Regulation Article 70(1)). Pitfall: deleting superseded valuation files when a holding is sold. -->

### 15.1 Records

| Record | Retention | Location |
|---|---|---|
| Documentation supporting each fair value determination (registered funds) | At least six years from the determination, first two years easily accessible (Rule 31a-4(a)) | [System] |
| Board reports under Rule 2a-5(b)(1) | At least six years after the fiscal year in which provided, first two years easily accessible (Rule 31a-4(b)(1)) | [System] |
| List of investments or types designated to the valuation designee | From designation until at least six years after the fiscal year the designation ends (Rule 31a-4(b)(2)) | [System] |
| Valuation files, committee minutes, overrides, challenges (all vehicles) | [Longest of applicable rules, fund documents and [x] years] | [System] |
| Model documentation and validation reports | Life of the model plus [x] years | [System] |

### 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.

| Review item | Last review | Result |
|---|---|---|
| Annual policy review | YYYY-MM-DD | [No change / changes listed in revision history] |
| Methodology coverage of all asset types held or permitted | YYYY-MM-DD | [Result] |
| Testing results and resource adequacy | YYYY-MM-DD | [Result] |

### 15.3 Training

| Audience | Content | Frequency |
|---|---|---|
| Valuation team | Policy, procedures, models, documentation standards | On joining and annually |
| Portfolio managers and analysts | Their role, information duties, no-influence rule | Annually |
| Committee members | Policy, conflicts, recent issues | Annually |

### 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

<!-- Guidance: Keep terms consistent with the funds' financial statements. -->

| Term | Meaning |
|---|---|
| AIF / AIFM | Alternative investment fund / its manager under the AIFMD |
| Calibration | Setting unobservable inputs so that a technique reproduces the transaction price at entry |
| EV | Enterprise value |
| External valuer | Independent person appointed to perform the valuation function under AIFMD Article 19(4)(a) |
| NAV | Net asset value |
| Pricing service | Third-party provider of evaluated prices |
| Stale price | Price that has not changed for longer than the policy threshold |
| Valuation designee | See section 2 |

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.