How to provide Level 3 unobservable inputs for audited financial statements

In order to meet the minimum US GAAP requirements for the Fair Value footnote in the audited financial statements, your Fund Admin (“FA”) team needs to be provided with additional details on the funds’ investment positions. Please see below for the additional details needed for each investment position.

In addition, please see the “Illustrative financial statements: Private equity funds 2021” PDF, specifically page 22 for an illustrative example of this footnote.

Liquidity Classification:
There are three classifications available:
1. Level 1: Pricing inputs based on unadjusted quoted prices for identical assets or liabilities in active markets that the Partnership has the ability to access (i.e., publicly traded stock).
2. Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date.
3. Level 3: Pricing inputs are unobservable for the financial instruments and includes situations where there is little, if any, market activity for the financial instrument. The inputs into the determination of fair value require significant management judgment or estimation.
Valuation Methodology (also known as Valuation Technique)
Only for Level 3. In the absence of observable market prices, the Fund values its investments using valuation methodologies. It is acceptable for positions to use more than one valuation methodology. Please see the table below for commonly used valuation methodologies.
Input Type column (also known as Unobservable Inputs):
Only for Level 3 and not held at cost. The input type is the significant data point used in the valuation methodology. The input type used is dependent on the valuation methodology chosen to value an investment. Please see the table below for commonly used input types, not all input types may apply.
Input value:
Only for Level 3 and not held at cost. Provide the value or range used for each “Input type”. Please see below for an example of an input range.

Input type	Input value
Weighted average cost of capital	5-10%

Scenario	Common Valuation Methodologies/Techniques	Common Input Types/Unobservable Inputs
Scenario	Common Valuation Methodologies/Techniques	Common Input Types/Unobservable Inputs
The investment is held at cost or marked to a recently-transacted share price	Recent transaction	Transaction share price
The investment is valued by comparing to comparable public companies	Market approach - Guideline companies	EV/LTM Revenue multiples EV/LTM EBITDA multiples Discount for lack of marketability
The investment is valued by comparing to comparable company transactions	Market approach - Guideline transactions	Purchase price/LTM Revenue multiples Purchase price/LTM EBITDA multiples Control premium Discount for lack of marketability
The investment is valued based on the most-recent round of financing assuming all shares converted to common stock	Post money method	Discount for lack of matketability Equity adjustment
The investment is valued based on the most-recent round of financing considering the rights and preferences of the different share classes via an option pricing model	Subject company transaction method	Volatility Exit term Risk free rate Discount for lack of marketability Equity adjustment
The investment is valued based on the company's projected cash flows	Discounted cash flow analysis	Weighted average cost of capital Risk free rate Exit multiple Terminal growth rate

EV: Enterprise value

LTM: Last twelve months

EBITDA: Earnings before interest, taxes, depreciation, and amortization