More asset valuations needed amid COVID-19
Investors should be valuing their assets more frequently during the COVID-19 pandemic to increase certainty for investment companies and the markets, advises a leading advisory firm.
Investors who do not undertake quarterly valuation cycles should adopt a more frequent valuation cycle during the pandemic, according to an analysis from KPMG.
It said all investors should look to initiate re-forecasting and valuation processes “earlier than usual”.
According to KPMG, valuations should become more frequent because, as yet, detailed analyses of the cash-flow impacts and potential mitigations brought on by the pandemic have not been made.
An increase in valuations could potentially lead to a more informed assessment, which could result in highlighting the risk levels in specific sectors.
KPMG head of valuations Sean Collins said investors should take a more pessimistic approach to valuations and consider the lower end of a valuation range as better reflecting risk aversion of market participants.
“We consider the risk is currently skewed to the downside,” Mr Collins said.
“In the current circumstances, we would encourage investors to consider the entire range when selecting an appropriate point estimate of value and consider the increased risk aversion of market participants as evidenced by recent financial market performance.”
Mr Collins also said that, while time is limited to assess the impacts on cash flow and risks, investors should be valuing on a case-by-case basis.
“Many investors are trying to finalise the carrying values of their investments during a period of unprecedented economic shock,” Mr Collins said.
“Time is limited to assess the impact of this uncertainty on cash flows and the inherent risks of the investment companies over the short to medium term.
“We firmly believe any adjustments must be made on an individual investment basis, having regard to various factors, both COVID-19-related and others.”