SEC Issues Guidance On Fair Value Measurement And Disclosure For Private Credit And Other Private Assets For Registrants And Others

On September 28, 2026, the Staff of the U.S. Securities and Exchange Commission (SEC) published a statement regarding valuation of private credit assets that by its terms applies to public companies and registered investment companies (registrants). Many of the concepts discussed come from generally accepted accounting principles (GAAP), which may be applicable to investment advisers and the private funds they manage. Investment advisers with clients holding private credit assets should consider the concepts in this statement in their valuation policies and procedures.

Why Private Credit Is Under the Spotlight

Private credit assets—typically individually negotiated loans that do not trade on public markets—can present unique challenges for valuation. In the Staff’s view, unlike publicly traded securities with readily available market prices, private credit investments generally lack observable pricing data. The Staff reasons that determining the fair value of private credit assets frequently requires the use of “unobservable inputs,” placing these assets in “Level 3” of the fair value hierarchy set forth in Financial Accounting Services Board (FASB) Accounting Standards Codification (ASC) 820. Because valuing these assets involves such subjective assessments, the Staff emphasizes the need for thoughtful policies and procedures. Registrants are subject to affirmative disclosure obligations relating to accounting principles, and that disclosure should clearly explain these factors to investors.

Valuation Reminders from the Staff

The Staff’s statement offers several reminders about valuation best practices:

Timely and Quality Information Is Essential

A fundamental challenge with private credit is obtaining current, reliable information about borrowers. The terms of each loan—including what financial data borrowers must provide and how often—vary deal by deal. The Staff reminds managers that a lack of timely information does not excuse the responsibility to estimate fair value. Companies should consider whether their loan agreements require sufficient reporting to support ongoing monitoring and accurate financial reporting.

Think Like a Market Participant

Accounting standards require that fair value is an estimate of the price at which “an orderly transaction to sell the asset. . . would take place at the measurement date under current market conditions.”¹ While managers may start with borrower-specific data from direct relationships, such as payment history, covenant compliance and operating metrics, the Staff emphasizes that this information must be supplemented or adjusted to reflect a participant’s market perspective. This obligation to consider market perspective may, in the Staff’s view, necessitate consideration of broader market factors such as prevailing credit spreads, liquidity conditions and the compensation a buyer would demand for taking on the investment’s risks if those factors are inputs that a market participant would use in pricing transactions and are readily available. The SEC recently brought and settled an enforcement action against a private fund manager for failing to price principal trades of senior loans at fair market value, given the changes to market conditions.²

Calibration Matters

When a private credit investment is first acquired, the transaction price (if it represents fair value) serves as a key reference point. Accounting standards require management to “calibrate” their valuation models so that the model output equals the transaction price at initial recognition. The Staff has observed that robust and continuous calibration practices—including periodic checks against comparable transactions, public market equivalents, secondary market indications or credit indices—help ensure valuations remain grounded in market reality as conditions change.

Disclosure Expectations

The Staff places significant emphasis on the quality of disclosure provided to investors:

Be Specific About Valuation Methods

For Level 3 assets, disclosures must, when material, clearly communicate the valuation techniques used, the significant inputs (such as discount rates, credit spreads or comparable transaction data) and how changes in those inputs might result in materially different fair values. The Staff warned registrants against “boilerplate” language or overly aggregated presentations that fail to give investors meaningful insight into the specific judgments involved.

Explain Portfolio Risk Characteristics

Beyond valuation mechanics, the Staff highlights the importance of disclosing information that helps investors understand the overall risk profile of private credit portfolios. This disclosure should include transparency relating to:

• Loan modifications, restructurings and extensions that may not be apparent from high-level portfolio statistics.
• Non-accrual and non-performing investments, including the criteria for classifying investments this way, when interest accrual stops and how previously accrued but uncollected interest is handled.
• Payment-in-kind (PIK) interest, including how it is recognized, whether it represents a growing portion of reported income and what the presence of PIK interest may indicate about borrower financial health or credit risk.

Private Fund Secondary Activity and Using NAV as a Practical Expedient

U.S. GAAP accounting standards allow funds to estimate the fair value of certain investments using net asset value (NAV) reported by an investee fund, provided specific conditions are met, including that the investment does not have a readily determinable fair value and that it is an investment in an “investment company” within the scope of FASB ASC Topic 946: Financial Services – Investment Companies. However, the Staff offers important reminders:

• Using NAV as a practical expedient may produce a measurement that differs from what would be realized in an actual transaction between market participants. The accounting standards board acknowledged this tradeoff when adopting the expedient.
• The practical expedient is optional on an investment-by-investment basis. Managers must verify that each investment meets the required criteria—including that the investee’s NAV is calculated consistently with applicable measurement principles and as of the same measurement date.
• The expedient cannot be used if it is probable the investment will be sold for an amount different from NAV.

As the secondary market for private fund interests grows (transaction volume increased approximately 42% from 2024 to 2025, reaching $220 billion), there may be more market data available to inform these assessments. The Staff encourages an iterative, evidence-based approach: identifying relevant information, evaluating its implications as to whether the practical expedient applies and documenting conclusions.

Implications for Auditors

The Staff also addresses the critical role auditors play in evaluating private credit valuations.

Given the complexity and judgment involved in fair value estimates—and their susceptibility to management bias—auditors must exercise professional skepticism. This approach includes robust risk assessment that considers industry and market conditions, not just company-specific factors. Auditors may need to modify their approach as circumstances change. During market disruptions, auditors should reconsider whether management’s reliance on prior assumptions remains appropriate. When investee-reported NAV is used, auditors should consider the reliability of investee financial statements and test the supporting information. Auditors should not accept less than persuasive evidence—if auditors believe additional evidence is needed, they must seek it out.

The Bottom Line

Reinforcing existing valuation requirements should come as no surprise to investment managers and signals that the Staff is paying close attention to how private credit and other private assets are valued and disclosed. The Staff expects registrants holding private assets to maintain strong valuation processes and use market-based assumptions. While much of the language in the Staff statement relates to “registrants,” many of the concepts are based in GAAP and are likely to apply beyond registrants, although disclosure obligations vary between registrants and non-registrants.

Footnotes

1. FASB ASC Topic 820-10-05-1B.

2.  See In the Matter of Madison Capital Funding LLC, Advisers Act Release 6948 (Feb. 25, 2026) available at https://www.sec.gov/files/litigation/admin/2026/ia-6948.pdf.