Private equity firms were actually lowballing how much their companies were worth until new laws forced them to be honest.
March 26, 2026
Original Paper
Fair Value Implementation And Asset Valuations In Private Equity
SSRN · 6465718
The Takeaway
Regulators and the public often worry that private equity funds inflate their asset values to look better to investors. This study found that before the SFAS 157 rules, funds actually preferred to report highly conservative, lower-than-market values for their portfolios.
From the abstract
This paper analyzes the effects of SFAS 157 "Fair Value Measurements" (subsequently, ASC 820) on portfolio valuations reported by private equity (PE) funds. Using a novel fund-level dataset of timed cash flows and net asset values (NAVs), we find that PE firms revised their NAVs upwards on average. Additional cross-sectional tests reveal that fair value implementation had differential effects on reported NAVs depending on fund type, performance, and auditor choice. The Big 4 auditors had a signi