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Private Equity Industry Guidelines Group reveals valuation guidelines

The Private Equity Industry Guidelines Group (PEIGG), an organisation set up by a number of US general partners and limited partners in 2002, has announced guidelines to help private equity firms establish the value of their investments.

The group’s guidelines include recommendations to value a company based on its latest round of financing and to adjust valuation depending on market conditions and company results. The guidelines add that valuation adjustments should be based upon actual results and not company forecasts.

The group also suggests that private equity firms communicate with other investors in the same company to discuss valuation. Although firms should not be required to use the same valuation, they should each establish valuations in accordance with ‘generally accepted accounting principles,’ the PEIGG states.

The aim of these guidelines is to get the private equity industry to approach valuation from a consistent basis and to provide a greater degree of transparency in the asset class. The PEIGG was established in order to deal with a number of issues that have arisen in the private equity industry recently, including valuation and limited partner reporting.

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