Britain’s financial watchdog scrutinises private asset valuations – source

By Huw Jones

LONDON (Reuters) – Britain’s financial watchdog is considering whether to review valuations in unlisted assets to see if they properly reflect the impact of higher interest rates on borrowings, a person familiar with the situation said on Wednesday.

The Financial Conduct Authority (FCA) began looking at the wider issue of liquidity after so-called liability-driven investment funds – also known as LDI funds- struggled last September to raise more collateral after yields on UK government bonds rocketed.

After imposing bigger safety buffers on LDI funds, regulators have now turned to the wider market, including how private market assets are valued, according to the source, who declined to be named because the plans are not yet formalised.

This work will form part of the FCA’s focus over the coming year or so, the person said, adding it had not been decided if market participants would be formally asked to re-value their assets.

The Financial Times reported the FCA plans earlier.

Richard Olson, head of UK and European valuations at investment bank Lincoln International, said it was a wake-up call for alternative asset managers, particularly smaller scale funds.

“It may even push some smaller funds towards full outsourcing or M&A to larger platforms,” Olson said.

“Sophisticated limited partners have been demanding independent valuations in diligence and fund governance for many years, which is why most of the larger alternative asset managers have already moved to external independent valuations,” Olson said.

(Reporting by Huw Jones; Editing by Sinead Cruise and Mark Potter)