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SEC Staff Statement on Private Credit and Practical Expedient Valuation
Background
- On September 28, 2026, the SEC’s Chief Accountant and the Director of the Division of Investment Management issued a joint staff statement on fair value measurement for private assets, with a particular focus on private credit.
- The statement is directed primarily at registered closed-end, interval and tender offer funds, BDCs, and private funds registered under the Exchange Act, but its concepts apply equally to any fund holding private credit or fund interests acquired through secondaries.
- While the statement creates no new requirements and does not carry the force of a rule, it does signal priorities to the industry, to auditors, and to the SEC’s examination and enforcement staff which will likely be acted upon.
Key Issues and Takeaways
| Issue | Risk | Takeaway |
| Timely information | Information about a holding’s impairment or condition does not reach valuation professionals in a timely way. | Possible issue at larger, more complex managers where the investment management and valuation functions are separated. Managers should maintain and test a process that moves credit and investment information from deal teams to the valuation function as expeditiously as possible. Daily-NAV evergreen vehicles holding illiquid assets are at greater pressure to ensure good information flow as their valuation cadence is much more frequent. Disclose any systemic delays in the flow of information as a risk factor. |
| Market pricing | Some managers continue to value credits on an impairment-only basis, disregarding movements in market spreads and rates. That approach held up while rates were stable; it does not hold up now. | Incorporate current credit spreads (or reasonable estimates of them), not just impairment, into valuations. |
| Calibration | A methodology may drift from the market, for example because it omits credit spread changes, and no longer produces a reliable result. | Periodically test models against observable transactions, including the entry price, comparable market trades and exits. |
| Fair value disclosure | A material valuation driver or assumption is not disclosed to investors. | Exhaustive disclosure is impractical, but material drivers should be disclosed, particularly those that explain a change in value or a stable mark in a volatile market. Changes in valuation methodology and the impact of any change should also be disclosed. Managers striking daily NAV with a methodology that could smooth returns should disclose the methodology and its potential effect. |
| PIK (Payment in Kind) Interest | PIK can signal borrower distress. Also, capitalized or accrued PIK increases principal, which can make a distressed loan appear to be appreciating when in fact the principal is growing because of the PIK and not because the loan is more valuable. | Scrutinize and document the valuation of PIK loans and disclose PIK where it may indicate distress. Ensure that you have established a reliable process for identifying distressed investments and reflecting that distress in valuations and disclosure. |
| Practical expedient | Using NAV as a practical expedient is permitted but can be unreliable in some circumstances. Detecting those circumstances and acting on them is the manager’s responsibility. | Develop a process to identify and address cases where the practical expedient breaks down, such as an unreliable investee NAV or secondary transactions indicating a different value. |
| Auditors | The statement expressly addresses auditor responsibility for evaluating management’s valuation judgments and disclosures. Auditors will react to this and scrutinize the valuation more deeply. | Expect heightened auditor scrutiny of private asset valuations particularly with regard to the issues described in this statement. |
Additional Takeaways
- Expect More Valuation Scrutiny – The issues identified in this statement have long been examination concerns, but the expansion of private assets to retail investors has sharpened the SEC’s focus on them. Advisers should expect SEC examiners and auditors to increase their focus on these issues as this statement signals the importance of valuation.
- Testing – Many of the issues highlighted in this statement are testable and correctable if detected early. Tests could address market pricing, practical expedient, PIKing loans and other risks. Completing tests can reduce unexpected issues during exams and audits.