Asset valuation is one of a chief financial officer’s core functions. CFOs are regularly asked about the value of a company’s shares, assets and subsidiaries, as well as that of companies and assets targeted for potential acquisition.
Yet increasingly, companies see valuations as an interdisciplinary area, where other arms of the business—especially risk management—can play a significant role.
The 2008 global financial crisis led many company leaders to conclude that a narrow accounting approach to valuation ignores critical risk factors. Global accounting firms such as KPMG and financial advisories such as Duff &Phelps have established risk-management units to assess asset valuations, outside of their traditional audit and accounting teams.
Proponents say that adding a risk-management approach to valuations brings added value to the corporate investment process and improves returns. Engineering and business schools are starting to adjust their existing training programs and establish new ones in response to the changing role of CFOs, part of which is increased demand for risk managers with strong valuation skills.
The NYU Stern School of Business, for example, offers a new Master of Science in Risk Management. The program is geared toward helping the next generation of corporate leaders manage risks, which the school’s directors contend cannot be separated from “strategic positioning, execution and competitive performance.”
Changes to traditional accounting functions and risk management also impact private equity and sovereign wealth funds, although the type of fund determines how they approach valuation and whether they need risk-management specialists.
Most sovereign wealth funds engage risk professionals in the pre-investment and asset-management phases. Since sovereign funds typically own minority stakes in various asset classes, there is often a need for an ongoing independent valuation process outside of their audit practice.
Private equity funds are adopting an independent and systematic approach to managing risks, including those associated with the valuation of capital commitments.
The rise of risk management in this space is also tied to regulatory reforms. In Europe, for example, the Alternative Investment Fund Managers Directive (AIFMD) has introduced several compliance requirements, including asset valuation and exposure.
