Fair value and disclosure considerations for private assets

SEC Chief Accountant Kurt Hohl and Division of Investment Management Director Brian Daly issued a joint statement discussing existing fair value measurement and disclosure requirements for private assets – with a particular focus on private credit and investments valued using NAV as a practical expedient.

The statement does not create new accounting requirements. Instead, it highlights existing requirements in ASC 820 and, for certain registrants, the regulatory framework under the Investment Company Act of 1940 (Investment Company Act) that the staff believes warrant renewed attention.

Applicability

Any entity holding private assets measured at fair value.

Information quality and timely data

Management is responsible for estimating fair value, a responsibility that remains even if underlying portfolio company, borrower or investee information is delayed or incomplete. Given the importance of sufficient information when making such estimates – the receipt of which may depend on the underlying entity – steps need to be taken to ensure registrants can continue to meet their valuation and financial reporting obligations.

Market participant assumptions

ASC 820 requires fair value measurements to reflect the assumptions market participants would use to price an asset. In addition to borrower-specific information, registrants need to consider reasonably available market information – including prevailing credit spreads, liquidity conditions and broader market factors.

Calibration

The statement reiterates the importance of calibration, which is required by ASC 820-10-35-24C, when a valuation technique uses significant unobservable inputs. The staff reminds registrants that the transaction price, when it represents fair value at initial recognition, serves as an important benchmark for evaluating whether subsequent changes in valuation assumptions remain consistent with market participant expectations. Periodic reassessment against market evidence – such as comparable transactions, public market comparables and credit indices – may help support valuation conclusions by ensuring assumptions reflect the perspective of a market participant.

Fair value disclosure expectations

For material Level 3 measurements, disclosures should clearly explain:

the valuation techniques used;
the significant unobservable inputs applied, and;
how changes in those inputs could result in significantly different fair value measurements.

The statement cautions that boilerplate or overly aggregated disclosures may obscure key judgments and valuation uncertainty. Entity-specific disclosures help users understand the factors driving reported values, the degree of measurement uncertainty and the judgments underlying the measurements.

Portfolio risk and performance disclosure

The staff also highlights disclosures about portfolio risk characteristics and performance, including nonaccrual investments and the criteria used to make such determinations, payment-in-kind (PIK) income, restructurings and other developments that may affect investors’ understanding of asset quality, credit risk and the sustainability of reported income. The statement emphasizes the importance of providing investors with transparent, decision-useful information regarding changes in portfolio performance and credit quality.

NAV as a practical expedient

The statement also addresses the application of net asset value (NAV) as a practical expedient under ASC 820. The practical expedient is optional, and management retains responsibility for concluding the criteria to apply the practical expedient are met. The staff notes that management should reassess whether use of the practical expedient remains appropriate as new information becomes available and should consider all reasonably available information in making this assessment.