Confidential valuation dispute concerning equity interests in a large hedge fund.
The matter was a confidential Valuation dispute concerning the fair market value of equity interests in a large hedge fund. At issue were membership interests in the fund's management and principal entities, together with a special profit allocation held by a principal of the fund, valued as of December 31, 2008 and December 31, 2010. The opposing party’s (IRS) valuation expert had estimated the fair market value of these interests using a discounted-cash-flow model together with a discount for lack of marketability.
Professor Mark E. Zmijewski, supported by Keith Bockus and Pavel Nikolov, was retained to evaluate the IRS expert's valuation and to prepare an alternative valuation of the interests. His analysis proceeded on two principal fronts: the treatment of the fund’s business risks in the cash-flow forecast, and the effect of the interests’ callable features on their value.