Valuing in the Absence of Markets: Using IVS to Strengthen Quality and Transparency in Private Credit Valuations

When a valuation is based on limited or non-observable inputs, there is an inherent risk that changes in credit quality, borrower performance or market sentiment are not immediately reflected in reported values. The issue is not that private assets cannot be valued – they can and must be – but that the process by which values are developed becomes critically important.

This is why the International Valuation Standards Council (IVSC) has placed a renewed focus on valuation risk in its current public consultation on the next edition of International Valuation Standards (IVS), proposed to be effective from 31 January 2028. The aim is straightforward: to strengthen the global framework that underpins how valuations are prepared, reviewed and relied upon, particularly in areas where transparency is limited, and the consequences of error can be significant.

One of the most significant proposals in the Exposure Draft is the introduction of a new General Standard—IVS 107: Quality Controls. This chapter is designed to move quality control from an implicit expectation to an explicit, structured requirement within the valuation process.

In practical terms, IVS 107 focuses on how valuation risk is identified, mitigated and documented. It emphasises the need for:

• Clear governance over valuation processes, including defined roles and responsibilities;
• Independent challenge and review, proportionate to the complexity and materiality of the valuation; and
• Documented procedures that demonstrate how significant judgements, assumptions and model choices have been tested and supported.

The proposed changes go beyond a single new chapter. The Exposure Draft also includes targeted revisions across the General Standards that speak directly to the issues highlighted by recent market events.

• IVS 104: Data and Inputs has been enhanced to place greater emphasis on the quality, relevance and provenance of data, including how valuers assess and use management-provided or client-supplied information. In private credit, where borrower data may be a primary source of insight, this reinforces the need for professional scepticism and clear documentation of how such inputs have been evaluated.
• IVS 105: Valuation Models introduces clearer expectations around the use of models, including those supported by advanced technology or automated tools. While innovation can improve efficiency and consistency, the standards reaffirm that professional judgement remains the responsibility of the valuer, not the model.
• IVS 106: Documentation and Reporting has also been expanded to improve transparency for users of valuations. The proposed changes encourage more explicit disclosure of significant assumptions, the use of specialists or service organisations and, where relevant, the extent to which technology or non-transparent tools have been used in developing the valuation.

Together, these revisions are intended to make it easier for investors, auditors, and regulators to understand not just the number, but how that number was arrived at.