The staff of the Securities and Exchange Commission, including the Office of the Chief Accountant and the Division of Investment Management (the “Staff”), recently issued a Statement on Fair Value Measurement and Disclosure Considerations for Private Assets (the “Statement”). The Statement highlights considerations for applying Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, to private assets, particularly private credit investments and emphasizes the importance of focused and transparent disclosures.
The Statement comes as investments in private credit continue to grow. The Staff notes that registered fund portfolios holding private credit increased by approximately 60% to nearly $100 billion between December 2020 and December 2025. This growth also presents unique valuation challenges. Private credit investments are often illiquid loans that are privately negotiated and do not trade in active secondary markets, making fair value difficult to determine. Under the fair value hierarchy in ASC Topic 820, private credit investments generally fall within Level 3 when significant inputs used to determine fair value are unobservable. The Statement provides reminders regarding valuation and disclosure considerations.
The Staff emphasizes that the availability of information is an important consideration in determining fair value and that the analysis must be conducted from the perspective of a market participant. Management remains responsible for determining fair value even when timely information is not available. In the private credit context, information provided by borrowers to lenders may vary significantly in quantity, quality and frequency. Management may begin its analysis with information obtained through its relationship with the borrower but must consider whether that information differs from reasonably available information that a market participant would use in pricing the investment. Such information may include prevailing credit spreads, liquidity conditions and the compensation market participants would require for investment risk.
The Staff also highlights the importance of calibration under ASC Topic 820. The initial transaction price generally serves as an important reference point for determining fair value. If a valuation model does not produce a value consistent with the transaction price at inception, management should evaluate the reasons for the difference and make appropriate adjustments. Subsequent changes in fair value should reflect changes in market participant assumptions and other relevant market conditions.
The Statement also emphasizes the importance of clear and specific disclosures for Level 3 fair value measurements. ASC Topic 820 requires disclosure of valuation techniques, significant inputs and how changes in those inputs could affect the fair value measurement. For private credit investments, the Staff notes that disclosures should provide investors with information that may not be apparent from high-level portfolio statistics. For example, disclosures regarding asset modifications and restructurings may be material, as may information concerning non-accrual and non-performing investments. The Staff also highlights the importance of clear disclosure regarding payment-in-kind interest.
The Staff further addresses the use of net asset value (“NAV”) as a practical expedient under U.S. generally accepted accounting principles. In certain circumstances, ASC Topic 820 permits management to estimate the fair value of an investment based on the NAV reported by the investee. The Staff cautions that use of the NAV practical expedient may result in a measurement that differs from the fair value of the investment on the measurement date. Because the practical expedient is optional, management should evaluate its applicability on an investment-by-investment basis.
The Statement also highlights considerations for auditors evaluating fair value estimates. The Staff encourages auditors to apply professional skepticism when evaluating evidence supporting fair value measurements and to perform robust risk assessments that take into account external market factors. Auditors should also consider whether the use of the NAV practical expedient was appropriate and whether the financial statements and other evidence supporting valuation adjustments are reliable.
The Statement serves as a reminder of the importance of robust valuation procedures and meaningful disclosures. Applying ASC Topic 820 requires management to consider available information from a market participant’s perspective, even when information about an underlying private investment is limited or delayed. Focused disclosures regarding valuation methodologies, significant inputs, and developments affecting portfolio investments can provide investors with greater insight into the risks and uncertainties associated with private assets.
For the full statement, see here.