On September 28, 2026, Kurt Hohl, Chief Accountant of the SEC, and Brian Daly, Director of the SEC’s Division of Investment Management, issued a joint statement addressing valuation and related disclosure considerations for private assets, particularly private credit. The statement is framed as a reminder to registered funds, business development companies and other registrants holding private assets of existing requirements under U.S. GAAP and the Investment Company Act of 1940, as applicable, rather than a source of new obligations, given the ongoing growth and growing accessibility of private assets. Advisers and fund boards may wish to review their valuation processes and disclosures in light of the guidance provided in the statement.
Valuation Reminders. Private credit assets are typically illiquid, individually negotiated loans that do not trade on an established secondary market and therefore generally lack readily available market quotations. Accordingly, determining the fair value of such investments can involve a high degree of judgment in selecting appropriate valuation techniques, identifying relevant inputs and weighting assumptions. The statement highlights the following key points:
- Information gaps. As negotiated arrangements, borrower reporting requirements can vary significantly; however, the statement reminds registrants that a “lack of timely information does not relieve management of its responsibility to estimate fair value.” Accordingly, management should consider whether a loan’s reporting terms provide adequate and timely information to support ongoing valuations.
- Market participant view. The statement emphasizes that fair valuations should reflect a market participant’s perspective, rather than only management’s internal expectations. Fair valuations based on borrower information, such as payment history, covenant compliance and operating metrics, may need to be adjusted to account for the broader market environment, including credit spreads, liquidity conditions and other reasonably available information that a market participant would use to price the asset.
- Calibration. The statement also discusses the importance of robust calibration practices to ensure fair valuations continue to reflect a market participant’s perspective. Such practices may include periodic reassessments of model outputs in light of comparable transactions, public market equivalents, secondary market indications, relevant credit indices or other available market information.
Disclosure Reminders. Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurement, under U.S. GAAP establishes disclosure requirements for Level 3 assets (i.e., assets whose fair value measurement uses significant unobservable inputs). The statement reminds registrants that disclosures for Level 3 assets should clearly communicate the valuation techniques used, significant inputs to the valuation, and how changes in those inputs might significantly impact the valuation. Disclosures should not use boilerplate language or present information that is “overly aggregated.” In addition, disclosure regarding developments impacting private credit assets, such as loan modifications, restructurings, extensions, or non-accrual or non-performance periods, which may not be apparent from high-level portfolio data, may help investors better understand the assets and related risks. Similarly, disclosure about payment-in-kind (PIK) interest, including when and how it is recognized and whether it is a growing portion of income, may be material to investors evaluating a fund’s income stream.
NAV as a Practical Expedient. Under U.S. GAAP, registrants that invest in private funds are permitted to use the private fund’s reported net asset value (NAV) as a practical expedient in valuing the private fund, provided certain conditions are met. The statement reminds registrants that the use of the practical expedient is optional on an investment-by-investment basis, noting that management is responsible for assessing if the required criteria are met and whether the practical expedient should be applied. The statement encourages management to treat this assessment as “an iterative, evidence-based process,” pursuant to which relevant information is identified, such information is evaluated to determine if the required conditions are met, and the basis for management’s conclusion is documented.
Auditor Considerations. The statement also reminds independent auditors of registrants with private assets to apply “professional skepticism” in evaluating valuations of private assets, given the complexity and level of judgment involved in these estimates as well as the potential for management bias. The statement advises that, during periods of market disruption, auditors should consider whether management’s continued reliance on prior assumptions remains appropriate and consistent with market participant assumptions. The statement also provides guidance to auditors regarding their consideration of the appropriateness of a registrant’s use of NAV as a practical expedient when valuing private funds.
The joint statement is available here.
