Horizon
Highlights and conversations. Work that draws focus, signals movement, or holds a particular charge.
Horizon • Spring - Summer 2026 • Air
When “Fair Value” Isn’t the Same Value
By Chrys Ibombo | Ascender Fund Partners | Chicago
The question came near the end of a valuation committee call that had gone smoothly for an hour.
Someone in London shared a screen. Someone in Luxembourg asked for the spreadsheet. And then someone asked the question that never sounds controversial until it is:
“Are we taking a discount for the lock-up?”
The room split. Not loudly. Not dramatically. But completely.
Everyone on that call agreed on what fair value meant. They had all read the same guidelines. They all understood exit prices and market participants and the principle that valuation should reflect what an asset would trade form - not what you hope it’s worth.
And yet they disagreed.
That happens more than you’d think. Because the rules converged years ago, but the instincts never did.
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Start with the lock-up discount, because it’s the cleanest example of where two reasonable frameworks lead to opposite conclusions.
International Financial Reporting Standard 13 permits restrictions to affect fair value - but only when market participants would consider them in pricing. The standard requires an assessment: Is the restriction a characteristic of the asset itself? Would a buyer factor it into their price? If a restriction transfers with the instrument to any buyer, not just the current holder, then it may warrant adjustment. The standard even provides a worked example: start from the quoted price of an otherwise identical unrestricted instrument, then adjust if the restriction is genuinely asset-specific.
Accounting Standards Update 2022-03, which clarified Topic 820, takes a narrower view for one specific case: contractual sale restrictions on equity securities. For this category, applying a discount is inconsistent with the measurement objective. The restriction is a feature of the reporting entity holding the asset, not the asset itself. It doesn’t get priced in.
The distinction is of importance. If a restriction “travels” with the instrument and market participants would price it, international standards are comfortable letting it affect fair value. If it’s holder-specific, or if it falls within the specific category addressed by the 2022 update, Topic 820 pushes you away from embedding it in the number.
This matters even for private credit readers, because the same conceptual sorting exercise shows up everywhere: call protection, transfer restrictions, consent rights, amendment economics, side letters, and structurally embedded features that resist neat classification.
Both frameworks share the same philosophical center. Fair value is what the market would pay, in a market you can access, even if you can’t sell that specific instrument today.
The difference is where they draw the boundary around “the asset.” The work is in deciding what you’re looking at.
Think of it like two cartographers drawing the same coastline. One includes the tidal flats because they’re part of the shore at low tide. The other excludes them because they’re underwater for half the day. Neither is wrong. But if you’re building a house, the difference matters.
One framework adjusts for restrictions that feel economically real. The other keeps holder-specific constraints out of the number - because comparability requires a cleaner definition of what you’re measuring.
Neither is irrational. They’re sorting reality into different buckets.
But the bucket you choose determines whether your valuation is “fair value” or “fair value plus biography.”
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The IPEV Guidelines occupy a different place in this architecture. Fair value is defined by accounting standards IFRS 13, Topic 820. The guidelines don’t create a separate concept of value. They provide implementation guidance for applying that measurement objective in private capital contexts, where observable inputs are scarce and judgment fills the gap.
That’s why the guidelines spend so much time on process. They’re not redefining fair value but helping valuers navigate the same unit-of-account questions that accounting standards leave open.
The 2022 edition introduced language on ESG factors. The 2025 edition updates that to “sustainability factors.” But the principle is unchanged: these factors belong in valuation only where their impact can be measured. Qualitative storytelling stays outside scope.
That’s the same sorting problem. Is the sustainability-linked margin ratchet a characteristic of the asset, or a characteristic of the borrower relationship? The guidelines don’t answer that. They remind you that you have to.
The 2025 edition also addresses artificial intelligence tools, including large language models. The framing is careful: these tools can source data, interpret it, and support automated models. But automated models are not a replacement for professional judgment. The valuer remains fully accountable for inputs, process, outcomes, and conclusions - even if an AI tool produced part of the output.
Think of it like hiring a junior analyst who works incredibly fast, never sleeps, and occasionally hallucinates. The speed is real. The coverage is real. But you can’t blame the analyst when the number is wrong.
You’re still the one who signed off.
The best cross-border valuers are starting to treat AI the way they treat third-party pricing services: useful, but only after answering three boring questions - data lineage, model limitations, and override logic.
“Boring” questions are where fair value survives.
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Picture a European allocator diligencing an American manager’s direct lending portfolio. One position is a senior secured loan with a sustainability-linked margin ratchet tied to borrower emissions targets. The borrower missed the target. The margin stepped up. But the loan also carries a transfer restriction requiring sponsor consent - and the sponsor has been slow to grant it. The consent right becomes a gating item. It narrows the buyer universe. It’s economically real.
Under one framework, a valuer might adjust for that drag - if market participants would consider the restriction asset-specific. Under another, the same valuer might treat the restriction as holder-specific friction, belonging in disclosure rather than in the number.
The European process expects to see adjustment. The American process expects to see it excluded.
Neither side is wrong. One is solving for economic realism. The other is solving for comparability across managers who hold the same instrument under different side letter terms. When you’re allocating across fifteen managers, that kind of consistency matters more than it sounds.
It’s almost kindness.
Private credit valuations often fail in dull ways. Teams anchor to par, then justify small moves. They treat the last transaction as a moral fact. They translate covenant language into confidence without pricing the optionality. They confuse “we could hold this” with “the market would pay this.”
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If you read the 2022-to-2025 updates as “IPEV added sustainability and AI paragraphs,” you’ll miss the larger arc.
The guidelines are increasingly acting as a translator between three worlds moving at different speeds: accounting convergence, which is largely stable; market structure, which is fast-moving; and process risk, which is accelerating.
That’s why a document that isn’t supposed to be a standard ends up spending so much time reminding you what a standard can’t do. It can’t replace judgment. It can’t make unit-of-account debates go away. It can only tell you where the cliffs are.
The fascinating thing about cliffs is that most people don’t fall off them by running. They fall off by walking confidently in the wrong direction.
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Sources:
International Private Equity and Venture Capital Valuation Guidelines (IPEV), 2025 Edition
International Private Equity and Venture Capital Valuation Guidelines (IPEV), 2022 Edition
FASB Accounting Standards Update No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
IFRS 13 Fair Value Measurement