System Selection for Valuation Technology Platforms

Choosing the right technology requires a thorough selection process that clearly outlines the needs of key stakeholders and end users. At Alpha, we draw on our extensive experience to assist clients with this process. Our holistic approach to system selection emphasizes long-term strategies driving user adoption and a higher return on investment. Alpha’s approach leverages our deep subject matter expertise and a wide range of vendor relationships, providing a wide range of benefits to our clients. 

In assessing the core challenges of the valuation process, we identify the following pain points: 

• Efficiency and Accuracy: maintaining high levels of accuracy and operational efficiency in a resource and time constrained environment. 

• Capacity Constraints: the traditional valuation process is often labor-intensive, relying on outdated applications that are not scalable without significant capital investment.  

• Compliance: adhering to evolving regulations and increased scrutiny of fair value estimates requires a flexible and robust valuation platform.   

To address the challenges noted above, we suggest a range of solutions to support the transformation into a modern and sophisticated portfolio monitoring and valuation process. One part of any comprehensive solution requires adherence to key valuation principles. The second part goes beyond basic functionality to understand how the solution will integrate with existing business processes to enable scalability.  

System Selection 

When selecting a valuation technology system, it’s essential to evaluate different options based on the specific needs of your organization. Alpha Alternatives has a detailed understanding of vendor capabilities, functionality gaps, and planned enhancements, supported by recent experience with market peers. Through our process we can help clients clearly articulate system requirements along with detailed vendor assessment and product demonstrations.  

The ultimate decision on which platform is the best for an organization will be driven by firm specific requirements considering such things as the complexity of the underlying asset classes and available resources dedicated to platform operations and maintenance. In general, there are three (3) main categories in terms of valuation system selection: (1) a dedicated valuation solution; (2) cloud-based modeling and automation tools; and (3) the expansion of existing valuation models with automation tools. 

1. Dedicated Valuation Solutions typically support models such as traditional private equity investment strategies like LBOs and vanilla private debt investment strategies like first lien/second lien/unitranche term loans. These systems are often integrated with portfolio monitoring tools, enhancing operational efficiencies by automating data intake. Notably, dedicated technologies are evolving rapidly and investing significantly in new features. Centralized valuation platforms provide strong reporting and audit capabilities, minimizing manual error risks. Additional advantages of this option include standardized calculations consistent with fair value best practices, robust product support, and document extraction tools. However, dedicated valuation solutions are highly standardized and may not be flexible enough to handle all asset classes (e.g. asset based lending or real estate) which may require moving more bespoke valuations off platform. 

2. Cloud-based Modeling and Automation Tools offer immense flexibility and scalability, making them well-suited for firms with diverse or evolving investment strategies. These platforms allow for bespoke modeling across asset classes—including more complex or non-traditional strategies such as asset-based lending or real estate—without compromising on auditability or data integration. With built-in cloud infrastructure, version control is streamlined, and powerful calculation engines support high-volume data processing. These tools often feature a multi-dimensional, Excel-like interface that enables dynamic scenario analysis and seamless collaboration across teams. While implementation requires thoughtful design and planning, the adaptability of cloud-based platforms ensures that valuation models can evolve in lockstep with business needs. 

3. Expanding The Use of Existing Valuation Models With Dedicated Automation Tools allows organizations to optimize their current systems. By maintaining centralized, automated Excel models that pull inputs and output conclusions to a data platform, firms can establish a single source of truth. This option enhances workflows related to data collection but also demands vigilant oversight to maintain control over Excel-based files and may require additional automation tools for large-scale model updates. 

Ultimately, the choice of a valuation technology system depends on your organization’s specific valuation model needs, capacity for customization, and resource support. 

Adherence to Key Valuation Principles 

Any valuation process needs to adhere to key valuation principles and best-practice guidance. These core principles include but are not limited to: (1) consistent application of valuation methodologies, (2) consistent development and application of key inputs, (3) robust outputs and conclusions, and (4) strong administrative framework and controls.  

1. Consistent Application of Valuation Methodologies – When evaluating a technology solution, consider if the solution provides standardized approaches that adheres to best practices. Does the solution allow the valuation approach, along with any in-house customization, to be automatically updated and consistently applied across the portfolio of investments? As portfolios grow and diversify, the unique nature of individual investments may change. However, the valuation methods and approaches should be applied consistently. For example, does the proposed solution track changes in valuation methodologies from one reporting period to the next? Are the changes documented and consistent with recent developments in the portfolio company? 

2. Consistent Development and Application of Key Inputs  – When evaluating a technology solution, consider if the solution clearly identifies and calibrates significant unobservable inputs like discount rates and market multiples to recent transaction prices. Does the proposed solution allow the user to update these inputs across the portfolio to reflect changes in company performance or broader market shifts? Furthermore, does the solution aggregate and report on these inputs to aid management’s review and assessment of any biases or errors to ensure the integrity of the valuation conclusion?

3. Robust Outputs and Conclusions – When evaluating a technology solution, consider if the solution provides reporting features to systematically review the conclusions and identify any outliers to ensure the outputs are accurate and reliable. Do the proposed solutions allow for backtesting and screening for subsequent events that would either warrant a remeasurement of the fair value or additional disclosure? Furthermore, does the solution integrate with existing financial reporting platforms so that valuation prices can flow to the appropriate securities, fund entities, and administrative agents?  

4. Strong Administrative Framework and Controls  – The backbone of any effective valuation process is a strong administrative framework supported by comprehensive controls, policies and procedures. When evaluating a technology solution, consider if the solution allows for the automation of the documentation process and confirms that all required control activities are completed to expedite internal reviews and external audits. Does the proposed solution facilitate the fulfillment of management’s stated obligations under the valuation policy?   

The Path to Scalability 

Scalability, in a valuation context, refers to the ability to manage an increasing number of investments or handle large volumes of assets under management without a corresponding increase in cost. For alternative asset managers this means having the right infrastructure in place to handle a large and complex portfolio efficiently with reduced manual inputs and an increased use of automation tools to drive down the marginal cost per investment. Achieving this kind of scalability involves strategic investments in the following areas: 

1. Investing in New Capabilities – The right technology can help firms scale by automating data collection, processing, and analysis – enabling managers to handle growth without a matching increase in resources.

2. Working Around Traditional Capacity Constraints – Automation reduces the manual effort in valuation processes. Look for solutions that integrate across the value chain, improve efficiency, speed up reporting, and enhance quality – especially those that streamline data sharing with deal teams and third-party firms.  

3. Shifting Capital Requirements to Strategic Partners – Partnering with valuation consultants or offshore providers can cut internal costs and let asset managers focus on investor relations and core activities.   

4. The Benefits of a Collaborative Platform – Collaborative platforms involving third-party firms and stakeholders can streamline workflows, reduce redundancy, and boost scalability and capital efficiency. 

Conclusion 

Asset managers should evaluate technology solutions not only for their current capabilities but also for their flexibility and potential to support future growth. ​By aligning technology investments with these strategic considerations, firms can differentiate themselves in a competitive landscape.  

Selecting the right technology for a scalable valuation process will help improve efficiency, accuracy, and compliance. ​ Fair value measurements, as defined by FASB ASC 820, involve internal and external stakeholders, making it susceptible to delays and bottlenecks. Adopting appropriate solutions can mitigate these challenges by adherence to best practices with a consistent application of valuation methodologies, accurate development and application of key inputs, robust outputs, and a strong administrative framework.  

To achieve scalability, firms should invest in new capabilities that automate data collection and processing, work around traditional capacity constraints by integrating technology across the valuation process, and consider strategic partnerships to reduce capital expenditures. ​ Collaborative platforms can further enhance efficiency by distributing workloads and reducing redundant tasks. ​ 

Read part-1 of this Valuations series, Valuations in Focus.

Contact Alpha Alternatives  

As trusted advisors in this domain, we stand ready to help our private market clients navigate these changes, implement best-in-class solutions, and seize the opportunities that arise when innovation and regulation progress hand in hand. For more information, please contact Jordan Barnett jbarnett@lionpointgroup.com.