When it comes to valuing minority interests in family investment entities such as family limited partnerships, it is apparent that the income approach should now be used alongside the traditional asset/market approach. Join creator William Frazier for a live “nuts and bolts” example of exactly how the nonmarketable investment company evaluation (NICE) method is used. With examples of FLPs with different asset makeups and financial characteristics, this event will arm you with a new tool for implementing the NICE method in your practice. You can also learn where you can download the model, free of charge, and will also have access to a past presentation that discusses the methodology.

I.Introduction

II. Overview:

a. The family holding company:

  i. Family holding companies are very long-term investments; and

  ii. Relationships between time to a liquidity event and value:

1. Investment horizon; and

2. Probability distributions.

b. Asset classes and rate of return.

 III. Special FLP risks:

a. Lack of control;

b. Illiquidity; and

c. Incremental RROR for lack of control.

IV. Determination of curve of best fit and fair market value

V. Examples:

a. Portfolio return;

b. Investment horizon;

c. Distribution expectations;

d. Incremental return for lack of control (IROC);

e. Incremental return for lack of marketability (IROM);

f. Fair market value; and

g. Comparison to discount of traditional method.

VI. What-if scenarios

VII. Special considerations (specific risk) 

1. Describe how the income approach has come of age in valuing FLPs in Tax Court;

    

2. Restate the relationship between FMV and NAV (also known as the “total discount”) varies with time and risk;

    

3. Demonstrate how the NICE method is used through a live demonstration with actual model;

    

4. Describe how value is affected by:

    

   1. Asset riskiness;

       

   2. Holding period (investment horizon); and

       

   3. Distributions.