SEC Urges Greater Rigor in Private Credit Valuations
Securities and Exchange Commission staff urged fund managers, boards and auditors to apply greater rigor to the valuation and disclosure of private assets, with particular attention to private credit as registered funds expand their exposure to illiquid loans.
SEC chief accountant Kurt Hohl and Brian Daly, director of the division of investment management, said private credit investments in registered fund portfolios grew nearly 60% to $270 billion in December 2025 from $170 billion in December 2020. The officials said the growth makes robust valuation policies and investor-focused disclosure increasingly important for closed-end funds, interval funds, tender-offer funds, business development companies and certain private funds.
Private credit loans typically do not trade on established secondary markets and are generally measured using significant unobservable inputs, placing them in Level 3 of the fair-value hierarchy. The statement emphasized that management remains responsible for determining fair value even when borrower information is delayed or incomplete.
The staff said managers should assess whether loan agreements provide enough timely reporting to support monitoring and valuation and should not rely solely on borrower-specific information.
The statement also highlighted calibration, aligning a valuation model with the transaction price at initial recognition, as a key safeguard. Managers should periodically test whether model outputs remain consistent with evolving market information, the staff said.
Disclosure should be specific rather than boilerplate, the officials added. Registrants with material Level 3 positions should explain the valuation approaches used, significant inputs such as discount rates and credit spreads, and how changes in those inputs could materially affect reported values. The staff also urged fuller discussion of portfolio risk and income quality, including restructurings, extensions, nonaccruals and payment-in-kind interest.
Staff further addressed private fund secondary transactions, cautioning that managers using net asset value as a practical expedient must assess whether the reported NAV remains appropriate at the measurement date, particularly when an investment is likely to be sold at a price different from NAV.
The staff statement does not create new legal obligations, but reinforces existing GAAP, Investment Company Act and auditing requirements.