A group of U.S. investment managers and investors has released guidelines designed to help managers fairly value private equity investments in their portfolio companies.

The Private Equity Industry Guidelines Group hopes the guidelines will bring some consistency and transparency to the valuation of private equity investments. The aim is to help managers and investors monitor existing investments and to base investment decisions on the best estimate of “fair value”.

Many investment managers in the U.S. report to their investors under U.S. GAAP, which require private equity investments to be carried at “fair value”. Fair value essentially means the amount that an investment could be exchanged in a current transaction between willing parties.

Currently, there are a number of different valuation procedures used by managers, which makes it difficult for investors to manage their private equity portfolios efficiently and effectively.

The guidelines provide a base to consistently assign fair value, while acknowledging that for some period of time after making an investment, cost may be the best approximation of fair value. It also recommends the use of valuation policy committees to determine valuation methodologies.

The guidelines were developed after a year-long collaborative effort among private equity industry participants, with input from industry organizations including the National Venture Capital Association, the Institutional Limited Partners Association, the European Venture Capital Association, the British Venture Capital Association and others.

The guidelines are the first of a series of recommendations, developed by the group’s committees, which also include financial reporting, performance measurement and underlying portfolio company reporting to provide a core set of standards for the private equity industry.