SEC Issues Guidance on Fair Value Measurement and Disclosure for Private Credit and Other Private Assets for Registrants and Others

The SEC Staff's September 28, 2026 statement addresses a critical valuation challenge in the growing private credit market: the absence of readily observable pricing data for individually negotiated loans that do not trade on public exchanges. Because private credit assets lack market prices, fair value determinations rely heavily on "unobservable inputs," placing them in Level 3 of the fair value hierarchy under FASB ASC 820. The Staff emphasized that this inherent subjectivity demands robust valuation policies and procedures, with particular focus on disclosure quality. The guidance applies directly to public companies and registered investment companies, though many underlying GAAP-based concepts extend to investment advisers managing private funds.

The Staff outlined four core valuation principles. First, managers cannot use lack of timely borrower information as an excuse for inadequate valuation; loan agreements should require sufficient reporting to support ongoing monitoring and accurate financial statements. Second, managers must calibrate valuations to market participant perspectives, incorporating broader market factors such as credit spreads, liquidity conditions, and risk compensation that a hypothetical buyer would demand—moving beyond purely borrower-centric analysis. Third, robust calibration practices, including periodic checks against comparable transactions, public market equivalents, secondary market indications, and credit indices, help ensure valuations remain grounded in market reality as conditions shift. The SEC cited a recent enforcement action against Madison Capital Funding LLC (settled February 25, 2026) for failing to adjust senior loan valuations to reflect changes in market conditions as a cautionary example of this requirement.

On disclosure obligations, the Staff warned against "boilerplate" language and demanded specificity: registrants must clearly communicate valuation techniques, significant inputs such as discount rates and credit spreads, and the potential impact of input changes on fair values. Disclosure should also address portfolio-level risk characteristics often opaque in summary statistics, including loan modifications and restructurings, non-accrual and non-performing loan criteria and treatment, and payment-in-kind (PIK) interest recognition and prevalence—as PIK growth may signal deteriorating borrower credit health.

The Staff also clarified the optional use of NAV as a practical expedient for measuring fair value of fund investments. While ASC Topic 946 permits NAV-based measurement when specific criteria are met, the expedient is not mandatory on an investment-by-investment basis and cannot be applied if there is probable sale at a different price. With secondary market transaction volume for private fund interests reaching $220 billion in 2025 (up 42% from 2024), managers now have increasing market data to evaluate whether NAV-based valuations align with realizable prices. Finally, the Staff emphasized auditors' role in exercising professional skepticism, particularly during market disruptions, when evaluating the reliability of investee financial statements and the persuasiveness of valuation evidence.