SEC Staff Statement Signals Scrutiny of Private Credit Valuation Practices

The SEC staff statement, issued September 28, 2026, addresses valuation and disclosure of private credit and other private assets by public companies and registered investment companies. The staff reasons that privately negotiated loans generally lack observable pricing data, placing them in Level 3 of the ASC 820 fair value hierarchy and making fair value dependent on unobservable inputs.

For investment advisers and private funds, three areas carry operational weight. First, valuations must reflect a market participant's perspective, not only borrower-specific relationship data; credit spreads, liquidity conditions and risk compensation may be required inputs when readily available. Second, transaction-price calibration at acquisition should be followed by periodic checks against comparable transactions, secondary indications and credit indices. Third, disclosure should be asset-specific rather than boilerplate, and should address restructurings, non-accrual policies and payment-in-kind interest.

The statement also narrows use of NAV as a practical expedient: it is optional investment-by-investment, conditioned on consistent measurement and dates, and unavailable where a sale below NAV is probable. Secondary fund-interest volume reportedly rose roughly 42% to $220 billion, giving managers more market data but added comparability risk. Counsel should note the staff's reference to a recently settled enforcement action over senior loan principal trades, which signals where examination attention is heading. Advisers should review valuation policies, loan documentation and disclosure controls.