Key Takeaways
- • The SEC's Office of the Chief Accountant and Division of Investment Management issued a staff statement on fair value measurement and disclosure for private assets, with a particular focus on private credit, as reported by McDermott Will & Schulte on October 1, 2026.
- • The statement does not create new legal obligations, but signals continued SEC scrutiny of private credit valuation and calls for greater rigor in how these illiquid assets are valued and disclosed to investors.
- • The staff cautioned against overly aggregated "boilerplate" Level 3 disclosures that obscure significant valuation judgments and uncertainty.
- • The staff reminded managers that NAV as a practical expedient is available only under specific conditions, requires ongoing iterative assessment, and must be documented.
- • The statement calls on auditors to strengthen risk assessment procedures, particularly during periods of market disruption.
Summary
The US Securities and Exchange Commission's Office of the Chief Accountant and Division of Investment Management recently issued a staff statement addressing fair value measurement and disclosure considerations for private assets, with particular emphasis on private credit, according to a McDermott Will & Schulte analysis published October 1, 2026. The staff noted that private credit draws particular attention given the significant growth of these investments and the valuation challenges posed by individually negotiated, illiquid instruments for which market quotations may not be readily available. Although the statement creates no new legal obligations, the analysis characterizes it as a further reminder of the SEC's sustained focus on private credit valuation, following increased examination scrutiny and enforcement settlements involving mismarking. The statement follows a February 2026 SEC enforcement action, reinforcing the principle that valuation is a process rather than a formula.
The statement highlights several areas of focus. First, information quality and timeliness matter: bespoke covenants and reporting requirements may leave managers without sufficient borrower information for timely monitoring, but the staff stressed that such gaps do not relieve management of its responsibility to estimate fair value. Second, broader market developments may require adjustments to borrower-specific information, including consideration of credit spreads, liquidity conditions and risk compensation a market participant would demand. Third, robust calibration against comparable transactions, public market equivalents, secondary market indications and credit indices is an important element of a well-functioning valuation process.
On disclosure, the staff stated that Level 3 investments require meaningful disclosure of valuation techniques, significant inputs, and asset characteristics such as interest rates, maturity dates, income-producing status and payment-in-kind (PIK) interest status. It cautioned against boilerplate disclosures that are overly aggregated. Regarding net asset value as a practical expedient, the staff reminded managers that the approach is available only when certain conditions are met, may produce a measurement differing from a transaction-based fair value, and requires iterative, documented assessment of reasonably available secondary-market information.
The statement also addresses auditors, calling on them to perform robust risk assessments that account for industry and market conditions and to reconsider whether management's reliance on prior assumptions remains consistent with market participant assumptions, especially during market disruption. Auditors are reminded that audit evidence includes information that contradicts management's assertions. Managers are advised to pressure-test valuation policies, committee procedures, escalation protocols and third-party valuation arrangements, and to expect examination staff to review contemporaneous documentation of information considered, assumptions challenged and disagreements resolved.
The statement highlights several areas of focus. First, information quality and timeliness matter: bespoke covenants and reporting requirements may leave managers without sufficient borrower information for timely monitoring, but the staff stressed that such gaps do not relieve management of its responsibility to estimate fair value. Second, broader market developments may require adjustments to borrower-specific information, including consideration of credit spreads, liquidity conditions and risk compensation a market participant would demand. Third, robust calibration against comparable transactions, public market equivalents, secondary market indications and credit indices is an important element of a well-functioning valuation process.
On disclosure, the staff stated that Level 3 investments require meaningful disclosure of valuation techniques, significant inputs, and asset characteristics such as interest rates, maturity dates, income-producing status and payment-in-kind (PIK) interest status. It cautioned against boilerplate disclosures that are overly aggregated. Regarding net asset value as a practical expedient, the staff reminded managers that the approach is available only when certain conditions are met, may produce a measurement differing from a transaction-based fair value, and requires iterative, documented assessment of reasonably available secondary-market information.
The statement also addresses auditors, calling on them to perform robust risk assessments that account for industry and market conditions and to reconsider whether management's reliance on prior assumptions remains consistent with market participant assumptions, especially during market disruption. Auditors are reminded that audit evidence includes information that contradicts management's assertions. Managers are advised to pressure-test valuation policies, committee procedures, escalation protocols and third-party valuation arrangements, and to expect examination staff to review contemporaneous documentation of information considered, assumptions challenged and disagreements resolved.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.