Private Asset Valuation Is Under Scrutiny: Six Questions Firms Should Be Ready to Answer
Private asset valuation is receiving increased attention from regulators, auditors, investors, and market participants.
Exposure is growing while many underlying investments remain difficult to value. Private loans are often individually negotiated, infrequently traded, and supported by borrower information that arrives less frequently than public-market data.
In September 2026, staff from the U.S. Securities and Exchange Commission’s Office of the Chief Accountant and Division of Investment Management issued a statement addressing fair value measurement and disclosure considerations for private assets.
According to the statement, private-credit investments within registered fund portfolios grew nearly 60%, from approximately $170 billion in December 2020 to $270 billion in December 2025.[1]
The statement does not create new rules or obligations. Instead, it reinforces existing requirements and reminds management teams, boards, valuation designees, and auditors of the judgment and documentation required when measuring private assets at fair value.
As private assets become more accessible, firms must be prepared to explain not only what an investment is worth, but how they reached that conclusion.
Here are six questions firms should be ready to answer.
1. Is the information supporting the valuation sufficiently current?
A valuation can only be as reliable as the information supporting it.
Borrower financial statements may be delivered quarterly, while material developments can occur between reporting periods. SEC staff emphasized that a lack of timely information does not relieve management of its responsibility to estimate fair value.[1]
Firms therefore need procedures for monitoring developments such as:
Changes in borrower performance, liquidity, or leverage
Payment delays or missed payments
Covenant breaches or amendments
Refinancings, restructurings, or extensions
Changes in collateral coverage
New market or industry developments
Relevant secondary-market activity
An unchanged valuation may be appropriate when no material developments have occurred. However, that conclusion should result from active monitoring—not from automatically carrying forward a prior-period value.
A firm should be able to answer:
What information did we consider, how current was it, and how did we identify developments not yet reflected in the borrower’s latest financial statements?
2. Does the valuation reflect market-participant assumptions?
Fair value under ASC Topic 820 is a market-based measurement.
Management may begin with borrower-specific information such as operating performance, payment history, and covenant compliance. However, the valuation should also reflect the assumptions market participants would use when pricing the asset at the measurement date.
Depending on the investment, firms may need to consider:
Current interest rates and credit spreads
Liquidity conditions
Comparable public instruments
Recent private-market transactions
Secondary-market indications
Expected cash flows
Default and recovery expectations
Industry-specific risks
The return a market participant would require
This is particularly important when market conditions change. A borrower may continue making payments even as broader credit, liquidity, or sector risks increase the return market participants would demand.
A firm should be able to explain:
How did we connect borrower-specific information with current market evidence, and why do our assumptions reflect a market-participant perspective?
3. Has the valuation methodology been properly calibrated?
Calibration connects a valuation model to the transaction price at initial recognition and provides a reference point for future measurements.
When the transaction price represents fair value, the valuation technique should initially produce a consistent result. Subsequent changes should reflect developments in market conditions, borrower performance, assumptions, or the methodology.
A calibration process may compare model results with:
The original transaction price
Comparable transactions or public-market equivalents
Relevant credit indexes
Secondary-market indications
Subsequent financing activity
Actual repayments, recoveries, or sales
Calibration should continue after initial recognition. If a model produces a result that differs materially from available market evidence, the firm should understand and document why.
Methodology changes may be appropriate, but the firm should be able to demonstrate why the revised approach better reflects fair value.
A firm should be prepared to answer:
When was the methodology last calibrated, what evidence was used, and can we explain significant differences between the model and available market information?
4. Do the disclosures explain the valuation clearly?
A sound valuation process can still be undermined by disclosures that are too broad to help investors understand the conclusion.
SEC staff noted that boilerplate or overly aggregated disclosures may not provide sufficient context about the techniques and inputs used to value private-credit assets.[1]
For material recurring Level 3 measurements, disclosures may need to address:
The valuation techniques used
Significant unobservable inputs
Quantitative information about those inputs
How changes in the inputs could affect fair value
The degree of measurement uncertainty
Material methodology changes
Developments affecting portfolio risk and performance
Private-credit disclosures may also need to explain restructurings, extensions, non-accrual investments, loan modifications, or increasing payment-in-kind interest.
The objective is not simply more disclosure. It is information specific enough for readers to understand the judgments, uncertainty, and risks behind the reported value.
A firm should be ready to answer:
Would a knowledgeable reader understand what drove the valuation and how the conclusion could change if key assumptions moved?
5. Is reliance on reported NAV still appropriate?
Some investments in private funds may qualify for the NAV practical expedient under ASC Topic 820. When the applicable conditions are met, this permits an entity to estimate fair value using the NAV reported by the investee.
However, reliance on reported NAV is not automatic.
The reported NAV generally must be:
Calculated consistently with the measurement principles of ASC Topic 946
Measured as of the reporting entity’s measurement date
Supported by appropriate due diligence and ongoing monitoring
Management may not use the practical expedient when it is probable that the investment will be sold for an amount different from NAV.
Firms should also consider changes in market conditions, investee valuation policies, internal controls, liquidity restrictions, and reasonably available secondary-market information.
Reported NAV may differ from the price available in a transaction between market participants. That does not automatically make NAV inappropriate, but it makes evaluation and documentation essential.
A firm should be prepared to explain:
Why does the investment qualify for the NAV practical expedient, what evidence supports reliance on the reported NAV, and has any new information changed that conclusion?
6. Could the firm provide persuasive evidence supporting the conclusion?
A valuation is not automatically defensible because it was produced by an established model or provided by a third party.
Auditors are required to evaluate the methodology, significant assumptions, and reliability of the data supporting accounting estimates. They must consider contradictory evidence as well as information supporting management’s conclusion.[2]
The valuation record should allow a qualified reviewer to understand:
What information was available at the measurement date
Why the methodology was selected
Which inputs and assumptions were significant
How external market information was used
How contradictory evidence was evaluated
Why comparable investments were considered relevant
The reasons for any overrides or methodology changes
How the conclusion changed from the prior period
Who reviewed and approved the valuation
Third-party pricing can strengthen the process, but management remains responsible for the amounts reported in its financial statements. Firms should understand the methods, inputs, and limitations underlying any external valuation they use.
Independent valuation should provide more than another number. Its value lies in introducing informed challenge and producing a conclusion that can be understood, supported, and reviewed.
The final question is:
Could an independent reviewer reconstruct the valuation and understand why it was reasonable based on the information available at the measurement date?
What firms should do before the next review
Increased scrutiny does not necessarily require firms to rebuild their valuation processes. It does create a strong reason to confirm that existing practices are keeping pace with portfolio growth, market conditions, and stakeholder expectations.
Before the next reporting or audit cycle, firms should consider:
Reviewing borrower-reporting requirements and information frequency
Identifying gaps in ongoing portfolio monitoring
Confirming that methodologies remain appropriate
Comparing significant assumptions with current market evidence
Reassessing calibration procedures
Reviewing reliance on third-party prices and reported NAVs
Making disclosures more specific
Documenting overrides and methodology changes
Organizing support so conclusions can be recreated efficiently
Introducing independent challenge where significant judgment is involved
These steps can help identify weaknesses before they become audit questions, investor concerns, or regulatory issues.
Defensibility is becoming as important as the number
Private asset valuation will continue to involve judgment.
Limited trading activity, individualized terms, changing borrower information, and unobservable inputs make it unlikely that every qualified professional will reach exactly the same conclusion.
The goal is not to eliminate judgment. It is to make that judgment informed, consistent, transparent, and supportable.
As scrutiny increases, the strongest valuation will not simply be the one produced by the most sophisticated model. It will be the conclusion supported by relevant information, market-participant assumptions, a consistently applied methodology, clear documentation, and effective review.
Harvest provides accurate, independent, and transparent valuations for simple to hard-to-price financial instruments. Through specialized loan valuations, documented inputs and assumptions, transparent methodologies, and experienced valuation professionals, Harvest helps financial reporting teams reach conclusions that are easier to understand, support, and review.
Can your firm clearly defend the valuations behind its financial reporting? Contact Harvest Investments to learn how its valuation professionals can support your team.
