Statement Summary
The U.S. Securities and Exchange Commission emphasizes the need for transparency and rigor in valuing private assets, especially private credit, which has increased significantly in registered fund portfolios. As investments in private assets require fair value measurement, registrants must ensure accurate valuations and engage auditors to evaluate management judgments. This press release outlines the importance of clear disclosures under FASB ASC Topic 820, addressing significant judgment areas, calibration practices, and the relevance of market participant perspectives. It stresses that management must provide tailored disclosures about asset characteristics and performance risk, enabling investors to understand the true value and inherent risks of private credit assets. Auditors are urged to apply professional skepticism and comprehensive risk assessments to enhance credibility in financial information. Overall, the message advocates robust practices to ensure that investors receive transparent and reliable financial reporting.
Original Statement
Investment in private assets continues to grow, including for an increasing number of registrants that are required to subsequently measure these investments at fair value, such as registered closed-end funds, interval funds, tender offer funds, business development companies, and private funds registered under the Securities Exchange Act of 1934. The growing accessibility of private assets, including private credit, calls for a critical reminder that registrants maintain rigor over how these assets are valued and how those valuations and asset risk characteristics are disclosed to investors. Likewise, these issues are relevant for auditors who are responsible for evaluating management’s judgments and the sufficiency of a registrant’s disclosures.
This statement offers reminders from the staff of the U.S. Securities and Exchange Commission’s Office of the Chief Accountant and the Division of Investment Management (collectively, the “Staff”), regarding areas of significant judgment under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, and the importance of targeted and transparent disclosure.
The Staff believes that reinforcing existing requirements under U.S. generally accepted accounting principles (“U.S. GAAP”)—and, for certain registrants, including business development companies, the regulatory framework under the Investment Company Act of 1940 (the “Investment Company Act”)—will promote greater consistency and clarity in the financial information provided to investors.
The Staff has observed significant growth in private credit through our review of registrants’ filings and engagement with market participants. Specifically, private credit investment within registered fund portfolios has grown nearly 60%, from $170 billion in December 2020 to $270 billion in December 2025. Exposure to private credit assets is not limited to funds registered under the Investment Company Act and business development companies. The reminders in this statement are relevant to all registrants with exposure to private credit assets.
Fair Value Measurement and Management’s Responsibility
Private credit assets are typically illiquid, individually negotiated loans that do not trade on established secondary markets and therefore generally lack readily available quoted prices. As such, determining their fair value frequently requires the use of significant unobservable inputs, meaning these measurements are typically categorized as Level 3 within the fair value hierarchy established by FASB ASC Topic 820.
The degree of judgment required in selecting valuation techniques, identifying relevant inputs, and weighting assumptions in accordance with FASB ASC Topic 820 can be significant. This judgment and the inherent complexity in valuing these assets calls for thoughtful policies and procedures designed to estimate fair value and to provide clear disclosure to investors.
The Market Participant Perspective
FASB ASC Topic 820 requires management to take into account the characteristics of an asset or liability if market participants would take those characteristics into account when pricing an asset or liability at the measurement date. This ensures that fair value measurements under U.S. GAAP reflect internal expectations only to the extent they are consistent with a market participant’s perspective.
Management often begins with borrower-specific information available through its direct relationship and monitoring activities, such as payment history, covenant compliance status, and operating metrics. However, FASB ASC Topic 820 requires supplementing or adjusting an entity’s own data if it differs from reasonably available information that a market participant would use when pricing the asset to ensure the measurement reflects a market-based perspective.
The Importance of Calibration
At initial recognition, an investment’s transaction price, when it represents fair value, provides a critical reference point for management’s future measurements. When subsequent measurement relies on unobservable inputs, FASB ASC Topic 820 requires management to calibrate the valuation technique so that, at initial recognition, the result of the valuation technique equals the transaction price.
This facilitates an evaluation of any difference between the transaction price and the model’s indication of fair value and ensures valuation techniques reflect current market conditions. Subsequent changes in fair value should be driven by changes in the assumptions or valuation techniques consistent with a market participant’s perspective.
Fair Value Measurement Disclosures
FASB ASC Topic 820 establishes specific disclosure requirements for recurring Level 3 fair value measurements, including quantitative information about significant unobservable inputs used in the valuation. When material, a registrant’s disclosures must clearly communicate:
- Key drivers of value
- Degree of measurement uncertainty inherent in material reported amounts
The Staff reminds registrants that disclosures that are not appropriately tailored, use “boilerplate” language, or present information on an overly aggregated basis may not provide sufficient context to investors regarding the valuation techniques and inputs used to measure private credit assets. Clear, entity-specific disclosure helps investors better evaluate the judgments underlying these fair value measurements.
Transparency Around Portfolio Risk Characteristics and Performance
U.S. GAAP and Regulation S-X provide requirements for disclosing types of investments, industry and geographic region, and certain asset characteristics including, interest rates, maturity dates, income producing status and payment-in-kind (“PIK”) interest status. The Staff has observed best practices for the types of disclosure that may be material for investors to understand the overall risk profile of private credit portfolios and how that profile may change over time.
For example, private credit assets may undergo modifications, restructurings, extensions, or periods of non-accrual that might not be readily apparent from high-level portfolio statistics. Thoughtful disclosure about these developments can help investors better understand, among other things, the quality of reported income, impacts to fair value, and changes to risk characteristics within the portfolio.
Audit Considerations
Auditors play an important role in enhancing the credibility of the information received by investors regarding the fair value of private credit assets. The complexity and judgmental nature of these fair value estimates, and their susceptibility to management bias, heighten the importance for auditors to exercise professional skepticism in gathering and evaluating audit evidence related to the fair value estimates.
This begins with auditors performing robust risk assessment procedures that take into account external factors, including industry and market conditions. Risk assessment is an iterative process and auditors may need to modify their audit response in light of changing circumstances and new information.
Across the valuation and disclosure topics discussed in this statement, the underlying message is the same: robust policies and procedures, paired with material disclosure, help investors understand an entity’s fair value process, the judgments involved, and the risks associated with private assets.
Management, boards, valuation designees, and auditors each serve important roles in ensuring that the financial reporting used by investors reflects the rigor, transparency, and investor focus that the existing legal and regulatory frameworks contemplate; the objective of these reminders is to help all parties apply and understand these frameworks with confidence, providing material information to investors.
