For estate planning and litigation involving the valuation of alternative asset management firms and carried interests, it is critical that fund principals choose their advisors carefully. Carried interests, which are also known as promotes, performance fees or profits interests, are the primary incentive payment mechanisms for general partners and managing members of hedge funds, private equity funds and venture capital firms.
Within the organizational structure of most hedge funds and private equity funds, significant variations can exist from one fund structure to the next. As a result, a “one size fits all approach” cannot be applied in the valuation of these interests. In order to develop a credible and defensible business valuations for carried interests and alternative investment management companies, the appraiser must have in-depth knowledge of the variety of structures utilized, the dynamics of the hedge fund and private equity fund industries, and an understanding of the markets in which they invest. Valuations of carried interests must be tied to a company’s underlying AUM projections, projected returns, and growth assumptions.
Sigma Valuation Consulting also has significant experience valuing limited partnership interests for estate planning purposes. In the estate planning or administration context, we analyze characteristics of control and marketability to support valuation discounts applicable to such interests which can vary significantly. The thoughtful application of discounts to alternative investment assets in large portfolios requires the appraiser to understand the nuances that impact value from one fund to the next, as well as the current market environment and the growing secondary market for alternative assets.
Sigma Valuation Consulting has valued many alternative asset management firms and has the necessary experience to assist such firms, their principals, legal counsel, and other parties in ascertaining values of interests in management and general partner entities, and related carried interests. We are routinely sought out to provide expert and valuation opinions for tax and transactional purposes, estate tax planning, and matrimonial and other litigation matters.