The SEC’s Enforcement Division is reportedly examining how private investments are valued, particularly in continuation funds. Its scrutiny of potential conflicts of interest and the adequacy of disclosure should not surprise anyone. As private markets have become a growing part of institutional portfolios, and more recently retail portfolios, valuation has become one of the most debated governance questions.
For much of the past decade, investors accepted an implicit bargain. In exchange for access to attractive return opportunities and diversification, they were willing to accept lower liquidity, less transparency, and fewer standardized practices. But bargains evolve as markets evolve.
As fundraising becomes more challenging and liquidity moves higher up investors' agendas, issues once viewed as secondary, including governance frameworks, valuation processes, and transparency, are becoming decisive. Not because these issues are new, but because they matter most when conditions become more demanding.
Better valuation governance sits at the heart of the new bargain.
Valuation is one of the areas in private markets where conflicts of interest can be most acute. It influences fees, reported performance, and the fair treatment of investors across transactions, particularly in GP-led continuation funds where the same manager has interests on both sides of the deal. As these transactions have become more commonplace as a source of much needed liquidity, the governance surrounding valuation has become central to investor confidence.
This is just part of a broader global shift. Regulators across the world’s major private capital markets – from the UK to Australia to Singapore and beyond – are placing greater emphasis on valuation governance, recognizing that robust processes, effective conflict management, and transparency are essential to maintaining confidence in private markets.
The alternative investment industry has faced moments like this before. Nearly two decades ago, the financial crisis became a defining moment for the alternative investment industry. Following years of rapid growth, the subprime mortgage crisis exposed vulnerabilities while deleveraging, investor redemptions, and heightened volatility triggered intense regulatory and public scrutiny. Against that backdrop, a group of hedge fund leaders came together around a simple proposition that the sector would be stronger if it demonstrated a collective commitment to standards and good governance. This ultimately led to the creation of the Standards Board for Alternative Investments (SBAI).
One lesson from that period endured: strong markets are built not only on performance and innovation, but on confidence and trust in the institutions and processes that support them. That lesson is just as relevant today.
Private markets are now core holdings for sovereign wealth funds, pension funds, insurers, endowments, and foundations. As the investor base broadens, including into retail markets, industry participants have both an opportunity and responsibility to help shape the governance frameworks that support sustainable growth. The industry’s response should not be to wait for regulation to dictate higher standards.
Private markets have always derived their strength from mechanisms that align managers and investors and preserving that alignment requires governance frameworks that evolve alongside the market itself. Industry-led initiatives can play an important role in translating these principles into practical standards.
Better governance doesn't necessarily mean more regulation. It means clearer separation between investment decisions and valuation decisions, stronger oversight of conflicts, independent review where appropriate, and greater transparency around how values are determined.
Organizations such as the Standards Board for Alternative Investments (SBAI) provide a vehicle for that leadership. By bringing together institutional investors and alternative asset managers to develop practical, industry-led standards, the organization shows that stronger governance need not come at the expense of innovation. On the contrary, common expectations around valuation, conflicts of interest, and transparency can reinforce the confidence on which private markets depend.
The most successful financial markets are built not only on innovation and investment performance, but also on trust. Private markets have reached a stage of maturity where this conversation can no longer be viewed as optional.
The next decade of competition in private markets will be defined less by access and more by trust.
Thomas Deinet is Executive Director of the Standards Board for Alternative Investments
