valuation of alternative assets - voltaireadvisors.com briefing slides - feb 2017... · keenan...
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Valuation of Alternative AssetsA SPECIALIST BRIEFING FOR PRIVATE FUND DIRECTORS, OFFICERS, ADMINISTRATORS,
ACCOUNTANTS AND LEGAL/COMPLIANCE PROFESSIONALS
“”
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In general, the art of government consists in taking as much money as possible from one party of the citizens to give to the other.
Voltaire
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Agenda
Welcome Ian Blance – Voltaire Advisors
0845-0930 Panel Session – Private Debt Valuation
0930 - 1015 Panel Session – Private Equity Valuation
1015 - 1045 Coffee
1045 - 1130 Panel Session – Real Estate Valuation
1130 - 1200 Keynote – Norm Champ
1200 End of Briefing
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Private Debt Valuation
Moderator:
Ian Blance, Managing Director, Voltaire Advisors
Panellists:
Justin Burchett, Managing Director, Valuation & Business Analytics, BDO
Ryan McNelley, Managing Director, Duff & Phelps
Lawrence Freundlich, Partner, Economic & Valuation Services, KPMG
Keith Smith, Managing Director, Empire Valuation Consultants
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Discussion Topics
What are the main issues when considering intrinsic versus fair value?
What are the key parameters driving the debt valuation process?
What methodologies are most commonly applied in this process?
How much influence should the investor have?
How should the original transaction feature in the valuation?
What market data is important to generating ongoing valuations for private debt?
What are the main considerations when looking at distressed debt?
How do we deal with consumer debt – i.e. ‘marketplace lending’
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Private Equity Valuation
Moderator:
Marine Cole, Americas Editor, Private Equity International
Panellists:
Fred Betz, Managing Director, Economic & Valuation Services, KPMG
Chris Franzek, Managing Director, Duff & Phelps
Travis Harms, Head of Financial Reporting Valuation Group, Mercer Capital
Keith Smith, Managing Director, Empire Valuation Consultants
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Discussion Topics
What is the latest thinking on PE valuation coming from the SEC/AICPA working group?
What are the key issues to be taken into account for PE fund valuation policies and procedures?
What are the main considerations when valuing investments in venture/early stage companies?
What are the main considerations when valuing investments in companies with complex capital structures?
What are the key calibration metrics in PE valuation?
How much should a deal team be involved?
What is the main market data requirements?
What are the key audit issues/findings in your experience?
Valuation of Alternative AssetsA SPECIALIST BRIEFING FOR PRIVATE FUND DIRECTORS, OFFICERS, ADMINISTRATORS,
ACCOUNTANTS AND LEGAL/COMPLIANCE PROFESSIONALS
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Real Estate Valuation
Moderator:
Ben Elder, Global Director of Valuation, RICS
Panellists:
David Eidman, Senior Manager, Empire Valuation Consultants
Mark Godfrey, Senior Managing Director, CBRE
Keenan Vyas, Director, Real Estate Advisory Group, Duff & Phelps
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Discussion Topics
How is ‘professionalism’ maintained in such a competitive RE valuation market? What is the role of these third-party appraisers?
Do valuers provide the information the clients want/need? What is the feedback from LP’s on current approaches?
What are the main internal challenges for a fund in developing sound valuation policies and procedures?
How valid is the cost approach to valuation?
What are the DCF implications of current economic conditions (fiscal stimulus/rising rates/constrained borrowing)?
How important is documentation and transparency?
What is the future for regulatory scrutiny of RE valuation?
How should the investor be involved in the process?
© 2017 Kirkland & Ellis LLP. All rights reserved.
Voltaire Advisors
Valuation of Alternative Assets for Private Funds Forum
February 9, 2017
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Disclaimer: The views, opinions, statements, analysis and information contained in these materials are those of the individual presenters and do not necessarily reflect the views of Kirkland
& Ellis LLP, or any of its past, present and future clients. These materials (1) do not constitute legal advice; (2) do not form the basis for the creation of an attorney/client relationship; and (3)
should not be relied upon without seeking specific legal advice with respect to the particular facts and current state of the law applicable to any situation requiring legal advice. These
materials may only be reproduced with the prior written consent of Kirkland & Ellis LLP. These materials are provided with the understanding that the individual presenters and Kirkland &
Ellis LLP are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly, such persons and entities assume no liability whatsoever in
connection with their use. Pursuant to applicable rules of professional conduct, this material may constitute Attorney Advertising. Prior results do not guarantee a similar outcome. The
following presentation is based on a limited set of publicly available materials and documentation which has not been verified or assessed by Kirkland & Ellis LLP and as a result this
presentation may not be wholly accurate or complete.
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1. Introduction
2. An SEC in Transition
3. Examination Trends
4. Enforcement Themes
Overview
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1. INTRODUCTION
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Introduction
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Partner, Kirkland & Ellis, Investment Funds Group (Current)
Teaching Investment Management Law at Harvard Law
School in Fall 2017 for seventh semester
Director of SEC’s Division of Investment Management 2012-
15
Deputy Director, SEC’s National Exam Program 2010-12
EVP and General Counsel, Chilton Investment Company
1999-2009
Private Practice, Davis Polk & Wardwell
Clerked in Federal District Court - SDNY
Going Public:
My Adventures Inside the
SEC and How to Prevent
the Next Devastating
Crisis
Published by McGraw-Hill Education and available
on March 17th. For more information and to pre-
order Going Public, please visit
www.goingpublicthebook.com
16
Kirkland’s Core Regulatory Team
Jamie Lynn WalterPartner, Washington, D.C.
Prior Experience
Former Senior Counsel,
Private Funds Branch, SEC
Division of Investment
Management
Aaron SchlaphoffPartner, New York
Prior Experience
Former Attorney Fellow,
SEC Division of Investment
Management
Norm ChampPartner, New York
Prior Experience
Former Director, SEC
Division of Investment
Management
Scott MoehrkePartner, Chicago
Josh WesterholmPartner, Chicago
Lisa CawleyPartner, London
Rob KhuzamiPartner, Washington, D.C.
Prior Experience
Former SEC Director of
Enforcement
Ken LenchPartner, Washington, D.C.
Prior Experience
Former Chief of Structured
and New Products, SEC
Division of Enforcement
Bob PommerPartner, Washington, D.C.
Prior Experience
Assistant Chief Litigation
Counsel, SEC Division of
Enforcement
SEC Enforcement Practice
+6 Partners
+15 Associates
17
President Trump’s Agenda
Affordable Care Act
Tax Reform
Rein in the Regulatory State
Immigration
Foreign Policy
18
2. AN SEC IN TRANSITION
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Kara
Stein Term expires 2017
Three SEC Commissioner Seats Are Vacant
Hester Peirce (R), senior fellow at the
conservative-leaning Mercatus Center was
tapped for an open seat in 2016. It remains
to be seen which two candidates will emerge.
Current Commissioners Vacant Commissioner Seats
Michael
Piwowar Term expires 2018
To ensure that the Commission remains non-partisan, no more than three
Commissioners may belong to the same political party.
Nominated
Chairman
(R)(D) (D)(R)
Jay Clayton
(R)
Mary Jo White
(right), stood down
as Chair on
January 20, 2017
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Election Implications for Enforcement, Exam and Investment Management
Division of
Enforcement
Division of
Investment Management
After nearly four years as SEC director
of Enforcement, Andrew Ceresney
departed his post in December 2016
As head of Enforcement, the SEC filed
more than 2,850 enforcement actions
and obtained judgments and orders
totaling more than $13.8 billion in
monetary sanctions
David Grim was announced as Director
of the Division of Investment
Management in May 2015, after
previously serving as the Acting Director
following Norm Champ’s departure
Mr. Grim is expected to remain in his
position in the near term
Resigned
National Exam
Program
Marc Wyatt was named Director of the
Office of Compliance Inspections and
Examinations (OCIE) and leader of the
National Exam Program in November
2015
The SEC announced on Monday that
Mr. Wyatt will leave the agency in
February
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Resigned
General Counsel
Director of Trading and
Markets
Director of Corporation Finance
Chief EconomistOther Open
Positions:
3. EXAMINATION TRENDS
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General Examination Trends in 2017
Seeing some
second-time exams after
initial presence exams
Exams have progressively
intensified as SEC obtains
more private fund expertise
SEC referring more private
fund adviser cases to
enforcement and/or requiring
significant remediation as
part of deficiency letter
process
Late 2015,
2016 and 2017 seeing
pickup in routine exams
across private fund
managers
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Exam Focus Areas: Fees and Expenses Disclosure and Allocation
Fund /
Client
Adviser
Other
Adviser
Vehicles
Fund /
Client
vs.
Co-
investorsPortfolio
Companies
Limited
Partners
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Allocation of investment / Co-investment opportunities
Whistleblower rule compliance
Political contributions / Pay-to-play
Cross-Fund investing
Marketing materials
Custody rule issues (including auditor independence issues)
Carried interest calculations
Valuation
Cybersecurity
Additional Exam Focus Areas
Financial statement disclosures
Code of Ethics / Personal securities trading
Compliance policies and procedures
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SEC independence requirements can
disqualify auditors of funds
Could prevent issuance of audited
financial statements to comply with the
Custody Rule
SEC can give relief
Possibility of future guidance
Auditor Independence Requirements
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4. ENFORCEMENT THEMES
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SEC Enforcement Trends
A top priority of the incoming SEC chairman will be to
appoint a new Director of the Division of Enforcement
Under Andrew Ceresney, Enforcement set another record
with number of cases in Fiscal Year 2016
868 total enforcement actions (807 in 2015), and the most ever –
160 – involving investment advisers or investment companies
Over $4 billion in aggregate disgorgement and penalties (approx.
$4.2 billion in 2015)
First-of-its-kind case against a private equity adviser for acting as an
unregistered broker (Blackstreet Capital Management, (June 2016))
The SEC has brought 11 private equity-related actions over its last two
fiscal years (including 8 in 2016)
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The Asset Management Unit within the Division ofInvestment Management is a specializedenforcement unit specifically focused on bringingcases against investment advisers, investmentcompanies, hedge funds and private equity funds
Enforcement Structure and Issues
Common enforcement matters involving
private fund sponsors include:
Conflicts of Interest
Fiduciary Duty
Disclosure
Fees and Expenses
Pay-to-Play
Valuation
Management Fee Waiver
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Potential Areas for Future SEC Enforcement Actions
Advertising / marketing materials
Equity and/or investment advisory
compensation paid in underneath-the-
fund structures
Investment / co-investment allocations
Operating partners
Pay-to-play rule violations
Stapled secondaries / fund
restructurings
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Administrative law judges have played an
important role in handling enforcement
cases for the SEC
In December, the 10th Circuit Court of
Appeals found that the SEC’s process for
hiring administrative law judges violated
the Appointments Clause of the U.S.
Constitution
Issue likely to make its way to the
Supreme Court
SEC’s Use of In-House Courts
Unconstitutional, Appeals Court Rules
December 28, 2016 I Dave Michaels
Administrative Law Judges and the Impact on Enforcement
31
Going Public:
My Adventures Inside the
SEC and How to Prevent
the Next Devastating
Crisis
Published by McGraw-Hill Education and available
on March 17th. For more information and to pre-
order Going Public, please visit
www.goingpublicthebook.com
32
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