Britain's financial watchdog has identified significant shortcomings in how private asset managers handle valuations, despite the sector's explosive growth and increasing retail investor participation.

The Financial Conduct Authority's multi-firm assessment revealed that while companies generally maintained adequate investor reporting and documentation practices, they frequently failed to properly identify and disclose potential conflicts of interest in their valuation processes.

This finding comes as global private capital assets under management have surged to more than $14 trillion – triple the volume from just a decade ago, according to figures cited by FCA chief executive officer Nikhil Rathi last October.

Camille Blackburn, director of wholesale buy-side at the FCA, emphasised the importance of robust valuation practices: "Good valuation practices are key to maintaining fairness and confidence as the market grows. There is still more to do, and we expect firms to carefully consider our findings."

The regulator has specifically called for increased independence within firms' valuation processes and enhanced procedures for conducting ad hoc valuations during market disruptions – issues that become particularly critical as more everyday investors gain exposure to these typically illiquid assets.

Unlike publicly traded securities, private market investments lack frequent trading and regular price discovery mechanisms, creating additional challenges for accurate valuation and portfolio tracking.

Last week, the watchdog took the unusual step of writing directly to private asset managers, warning them of intensified scrutiny regarding potential conflicts of interest to ensure investor outcomes remain protected.

The FCA's findings will inform its ongoing review of the Alternative Investment Fund Managers Directive and contribute to international efforts to develop consistent global valuation standards for private markets through the International Organization of Securities Commissions.

Britain continues to be Europe's largest centre for private market asset management, with investor demand from both individuals and institutions driving the sector's remarkable expansion.

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