# Fair Value

**Fair value** is the price that a portfolio position would command in a hypothetical orderly transaction between a willing buyer and a willing seller, both having reasonable knowledge of relevant facts, as of the measurement date. Because private company positions lack active market prices, fair value must be estimated using one or more valuation techniques defined by the [IPEV Guidelines](/reporting-and-metrics/ipev.md).

The definition aligns with IFRS 13 and ASC 820 — the international and US GAAP standards most LPs use for their own financial reporting.

## IPEV Valuation Techniques

The IPEV Guidelines define a hierarchy of techniques. GPs select the most appropriate technique for each position and must justify changes in technique between periods.

### 1. Price of Recent Investment

Applicable when an arm's-length transaction recently established a market price (typically within the last 12 months of a new financing round). The most reliable technique when available — no further adjustment is needed unless evidence indicates the price no longer reflects current conditions.

### 2. Enterprise Value / Earnings Multiple

The most common technique for mature portfolio companies:

```
Fair value = Enterprise value − Net debt
Enterprise value = Calibrated EV/EBITDA (or EV/Revenue) multiple × Portfolio company EBITDA
```

The multiple is calibrated against comparable publicly-traded companies and/or recent private market transactions. Gildi stores the comparable set, the selected multiple, and the EBITDA figure for every mark.

### 3. Discounted Cash Flow (DCF)

Used when earnings multiples are not applicable (e.g., early-stage companies, infrastructure assets, or highly leveraged situations). The present value of projected free cash flows, discounted at a risk-adjusted rate.

### 4. Industry Benchmarks / Net Assets

Applied to financial services, real estate, or holding companies where enterprise-value multiples are inappropriate. Uses sector-specific benchmarks or net asset value as the basis.

## Quarterly vs Annual Process

GPs are required to mark portfolio positions at fair value at least quarterly. The process involves:

1. **GP prepares a valuation memo** for each material position — technique, inputs, comparable analysis, commentary on changes since last quarter.
2. **Fund administrator reviews** for consistency and arithmetic accuracy.
3. **Valuation committee approves** — typically the GP's investment committee with at least one independent member.
4. **Auditors confirm annually** — external auditors review the methodology, inputs, and committee sign-off for the year-end marks.

## How Gildi Records Fair Values

For every portfolio position mark, Gildi stores:

* Valuation technique selected
* Key inputs (EBITDA, multiple, comparable set, discount rate)
* Resulting enterprise value and equity value
* Date of mark and period it covers
* Signoff chain (preparer, reviewer, approver)
* Audit status

Audited marks are locked — changes require an amendment workflow with auditor involvement. Unaudited quarterly marks can be revised until the next quarter closes.

## Relationship to NAV

Fair value rolls up to [NAV](/reporting-and-metrics/nav.md): fund NAV is the sum of all position fair values net of fund-level liabilities. Changes in fair value between quarters drive RVPI up or down and appear as unrealized gains or losses in LP capital account statements.


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