Complex Securities & Portfolio Valuations
Complex securities are instruments that have unique financial features and are closely linked to an equity, debt or hybrid instrument. Many include elements that alter payouts over the life of the security, such as options, return multiples or thresholds, and/or specific IRR and price-performance targets. These types of securities are often issued in conjunction with incentive compensation, corporate transactions, capital raises and other financing activities. We serve a broad array of clients with complex-securities valuations including public and private companies, private equity and venture capital funds, and corporate executives/high net worth individuals.
We apply sophisticated modeling techniques relevant to each situation. Complex securities can often require mathematical models that are “open-form” including Monte Carlo simulations and lattice models, while other derivatives are often handled through Black-scholes models.
Portfolio valuations can include a broad range of valuation challenges including illiquid, non-marketable securities, debt instruments, and structured products. Private companies at R&D, growth and pre-IPO stages all have unique characteristics that need specialized analysis and understanding. Portfolios themselves have grown more complex, incorporating alternative asset investments among the traditional stocks, bonds and cash equivalents.
Due to increased investor, audit and regulatory scrutiny around reporting for illiquid, non-public investments clients rely on OVP for independent third-party valuation services. Engaging a third party to perform portfolio level valuations, the valuation process bolsters documentation, increases independence and transparency and materially reduces measurement and reporting risks.
Our portfolio valuation clients include:
- Private equity funds
- Venture capital funds
- Hedge funds
- Corporate venture capital (CVC) and investment arms
- Family offices
We provide clients extensive experience across a broad swath of industries. We are able to add an independent viewpoint as well as an extra layer of support and transparency with more robust valuation policies that conform to best practices. We deliver well-supported conclusions and reports that comply with the relevant reporting standards and substantiation to withstand possible scrutiny.
How We Help
As a leading provider of global private company and illiquid asset valuations, OVP is uniquely positioned to provide the combination of market-based perspective and rigorous fundamental analysis that investors, regulators, auditors demand.
Engagements are often related to:
- Early or growth stage portfolio companies
- Equity compensation awards or other share-based payments
- Derivates and hedging instruments
- Nonqualified deferred compensation plans (409A) and related tax scenarios
- Other nuanced financial instruments and arrangements such as earnouts
Venture-backed and PE-backed companies can present complex valuation issues such as warrants, stock options and Section 409A, tiers of preferred equity with different economic rights, non-linear payoff profiles and option-like features. Considering past financings and interests and potential future funding or stock offerings, it is often not sufficient to simply value the total enterprise and take a fully diluted percentage to value a share – you need to understand the interconnected capital structure to value these companies. Equally, for many of these companies, private markets may be disorderly with limited publicly available data and full information about the company may be lacking. OVP has the experience to handle all of these situations with aplomb.
Whether its LPs and board members of a fund, stakeholders in a family office, or regulators, the expectation is for transparent and well-supported valuations. We provide clients with valuation that give investors and regulators confidence.
