Securities Regulation Daily Wrap Up, SEC NEWS AND SPEECHES—Commission’s chief accountant calls on registrants to maintain rigor over private asset valuations, (Sep 28, 2026)

By Suzanne Cosgrove

Private credit investment within registered fund portfolios has grown nearly 60 percent in the past five years—from $170 billion in December 2020 to $270 billion in December 2025.

Amid the growing accessibility of private assets, including private credit, the SEC’s chief accountant, Kurt Hohl, and Brian Daly, the Commission’s director of the Division of Investment Management, issued a statement urging registrants to maintain rigor over how these assets are valued and how those valuations and asset risk characteristics are disclosed to investors.

These issues are relevant for auditors who are responsible for evaluating management’s judgments and the sufficiency of a registrant’s disclosures, Hohl and Daly said.

According to SEC data, private credit investment within registered fund portfolios has grown nearly 60 percent, from $170 billion in December 2020 to $270 billion in December 2025. Further, 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,” they said.

Private credit assets typically are individually negotiated loans that do not trade on established secondary markets and so lack readily available quoted prices. Determining their fair value frequently requires the use of significant unobservable inputs, they said, meaning these measurements are typically categorized as Level 3 within the fair value hierarchy established by FASB ASC Topic 820.

Management’s responsibility. One of the most critical aspects of any fair value measurement is having access to relevant information in a timely manner, they stated. “Given the bespoke nature of private credit assets, the underlying arrangements may vary significantly, including in the quantity, quality, and frequency of information that borrowers provide to lenders—often driven by the specific covenants and reporting requirements negotiated in each deal.”

A lack of timely information does not relieve management of its responsibility to estimate fair value, they continued. Because this information forms the basis for fair value measurement, it is important for management to consider whether the reporting provisions in an arrangement are sufficient, including whether information is provided at an appropriate cadence, to support ongoing monitoring and financial reporting.

Market participants’ 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 consistent with a market participant’s perspective.

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.

In practice, this adjustment may require considering the broader market environment, including prevailing credit spreads, liquidity conditions, and the compensation a market participant would demand for bearing the risks associated with the investment.

Calibration’s importance. Initially, 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.

Subsequent changes in fair value should be driven by changes in the assumptions or valuation techniques consistent with a market participant’s perspective.

Disclosure reminders. 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:

• Valuation techniques used in determining fair value for private credit assets;

• Inputs that are significant to the measurement, such as discount rates, credit spreads, or comparable transaction data; and

• How changes in those inputs might result in a different fair value at the reporting date.

Such disclosure helps users understand the key drivers of value and the degree of measurement uncertainty inherent in material reported amounts.

Transparency and portfolio risk. 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 SEC noted that 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,” the Commission said.

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