SEC Releases Statement on Considerations Related to Measuring and Disclosing Fair Value of Private Assets

The staffs in the SEC’s Office of the Chief Accountant and Division of Investment Management have released a statement on the importance of using significant judgment in applying the requirements of FASB Accounting Standards Codification Topic 820, Fair Value Measurement, to measure private assets at fair value and provide transparent disclosures about such measurements. The statement is being released in view of the increasing investments in private assets as well as the many registrants that need to measure the fair value of such investments (e.g., registered closed-end funds, interval funds, private funds).

Specific topics covered in the statement include:

• The importance of relevant, timely information to fair value measurement, including management’s responsibility to ensure access to such information.
• Ensuring that fair value measurements reflect the perspectives of market participants.
• The importance of “robust calibration practices, including periodic reassessment of whether model outputs remain consistent with available market information such as comparable transactions, public market equivalents, secondary market indications, or relevant credit indices.”
• Providing clear, tailored disclosures about the judgments involved in fair value measurements, such as those related to Level 3 valuations (i.e., those with significant unobservable inputs).
• Transparency considerations related to the disclosure of portfolio risk characteristics and performance.
• The use of net asset value as a practical expedient under U.S. GAAP.
• The role auditors play “in enhancing the credibility of the information received by investors regarding the fair value of private credit assets.”