Which principle should be ensured when valuing illiquid or difficult-to-price assets?

Ensuring full transparency regarding valuation challenges is essential when valuing illiquid or difficult-to-price assets. Such assets often present unique valuation challenges due to the lack of market activity, comparable sales, or consistent pricing benchmarks. Transparency involves openly communicating to stakeholders the uncertainties and methodologies involved in the valuation process. This practice fosters trust and understanding, enabling investors to make informed decisions based on the inherent risks and limitations associated with those valuations.

Moreover, full transparency helps mitigate potential disputes that might arise regarding the perceived value of the asset. Investors need clarity on the factors affecting valuations, including market conditions, qualitative aspects, and potential ranges of value. This transparency is particularly vital in illiquid markets, where sudden changes can significantly impact asset valuation and investor confidence.

Other approaches, such as relying solely on historical data or imposing higher transaction fees, do not address the core issue of understanding and communicating the inherent valuation risks. Working exclusively with high-value investors may not contribute to a transparent or equitable valuation process either. Therefore, prioritizing transparency ensures a comprehensive and ethical approach to asset valuation, making it the most critical principle in this context.