Private Credit Valuation: SEC Staff Reinforces the Need for Discipline

Private credit valuations are bedrock to the continued sustainable growth of the market. Investors need current, supportable valuations and clear information about the risks underlying them. The statement issued on September 28, 2026, by SEC Chief Accountant Kurt Hohl and Division of Investment Management Director Brian Daly reinforces that expectation. Its central message deserves attention: established fair value principles require rigorous application, informed judgment and meaningful disclosure.

The staff statement, not a new Commission rule, emphasizes to registrants, boards, valuation designees, and auditors of private credit their responsibilities under the applicable accounting and regulatory frameworks. Fair value must reflect conditions at the measurement date, supported by information and assumptions that market participants would use. The absence of a quoted price increases the judgment required. It does not diminish the responsibility to reach a supportable conclusion.

The staff reports that private credit investments within registered fund portfolios increased nearly 60% from December 2020 to December 2025. As market access expands, the quality of valuation processes and investor disclosures becomes increasingly consequential.

A Performing Loan Still Requires a Current Valuation

A borrower making its contractual payments provides important evidence about credit performance. It does not, by itself, establish fair value.

A loan’s fair value also depends on the return a market participant would require for its remaining cash flows, considering current market conditions, liquidity, contractual protections, and investment-specific risks. An issuer may expect repayment in full and still hold an investment whose current fair value differs from par.

The fair value of a private credit investment does not necessarily move in lockstep with a public credit index, though private credit indices, such as the Kroll StepStone Private Credit Benchmarks, provide objective information as to fair value movements. Differences in seniority, covenants, collateral, maturity and borrower performance, while important, cannot become a justification for disregarding market evidence.

The staff’s emphasis on the market participant perspective is therefore particularly useful. Access to a borrower gives a manager valuable information. That information must be considered alongside reasonably available evidence about the broader market. Conviction in an investment does not replace the assessment of what another market participant would pay for it.

Calibration Must Remain Connected to the Market

The SEC statement also highlights calibration. When the transaction price represents fair value at initial recognition, a valuation technique using unobservable inputs must be calibrated to that price.

The practical purpose is straightforward: understand the economics embedded in the original investment and establish a defensible starting point for subsequent fair value measurements. Thereafter, reassess the assumptions as conditions change.

A model that continues to produce the original price despite meaningful changes in borrower performance or market return expectations requires investigation. So does a model that mechanically imports movements from an index without considering whether those movements apply to the investment being valued.

Relevant transactions, public market equivalents, secondary indications and credit indices can inform the analysis. Their relevance and comparability require informed judgment.

The International Valuation Standards Council makes a related point in its July 2026 discussion of private debt valuation methods. Its Perspectives Paper considers market evidence and calibration, yield and discounted cash flow approaches for performing debt, and recovery or liquidation approaches in distressed circumstances. Method selection must respond to the facts of the investment.

Information Delays Do Not Suspend Valuation Responsibilities

One of the SEC statement’s most practical reminders concerns information quality. A lack of timely borrower information does not relieve management of its responsibility to estimate fair value. This has implications at origination.

Reporting provisions should support the information needs of ongoing monitoring and valuation. It also has implications at each measurement date. Managers need a process for evaluating what has changed while more complete financial information is being prepared.

Frequent subscriptions and redemptions require more timely valuations. Market changes, cash flows, updated performance information, and investment-specific developments, must be considered along with informed judgment governing how those inputs affect value. Technology, grounded in these considerations is essential to accelerate this process.

The investor consequence is tangible. Where investors transact at NAV, an unsupported value can affect the allocation of value among entering, exiting and remaining investors. The valuation process must be designed around the dates on which reliable values are needed.

Disclosure Helps

A description of a valuation technique offers limited insight without meaningful information about the assumptions driving the result. Material Level 3 disclosures should explain significant unobservable inputs and the uncertainty associated with them. Excessive aggregation and generic language can obscure the very judgments investors need to understand.

The same principle applies to portfolio performance. Payment-in-kind interest, loan modifications, extensions, restructurings and non-accruals can materially affect the interpretation of reported results.

An extension or restructuring requires analysis of the revised economics. It may preserve value, but the resulting cash flow expectations, timing, and risks still need to be reflected in the fair value determination.

The NAV Practical Expedient Requires an Ongoing Assessment

The SEC statement extends beyond direct credit investments to investments in private funds.

The NAV practical expedient is available only when its conditions are met. Underlying investments must be reported at fair value. Using last reported NAV, without adjustment for current market conditions as of given measurement date, is not consistent with the requirements of FASB ASC Topic 820.

The staff acknowledges an important nuance: an eligible practical-expedient measurement can differ from the price achievable in a market participant transaction. A secondary-market discount therefore does not automatically establish that the underlying NAV is wrong or that the expedient is unavailable.

Nevertheless, reasonably available secondary-market information cannot simply be dismissed. Management must evaluate what that information indicates about the conditions for using the expedient and document its conclusion.

The assessment must evolve with the evidence. Initial due diligence alone cannot answer every question that arises over the life of an investment.

Transparency Responsibility

The SEC’s closing statement harps on the importance of pairing robust policies and procedures with material disclosure to support fair value assessment. Judgement paired with technology and proprietary data serves as the backbone of providing more frequent valuations that can stand up to scrutiny. Independent valuation specialists can offer expertise, challenge assumptions, and strengthen the evidence supporting a conclusion that, combined with data products such as the Kroll StepStone Private Credit Benchmarks, provide greater and more timely access to market movements

The SEC staff appropriately mention the consideration of evidence that contradicts management’s assumptions. A strong, data-driven process seeks out inconsistencies and resolves them. It should be possible to explain why a valuation changed—and why it did not. Kroll’s May 2026 Lens on Private Credit similarly emphasizes timely valuations, robust infrastructure, and strong governance as foundations for confidence in the asset class.

The September 28 SEC statement should prompt managers to examine whether their operating practices deliver what their valuation policies promise. Are inputs current? Are market assumptions supported? Are changes in credit quality reflected promptly? Do disclosures explain the economic substance of reported performance? Can an independent reviewer follow the evidence through to the conclusion?

Confidence in private markets is earned through consistent execution. Every measurement date provides another opportunity to demonstrate it.

Kroll’s Private Asset Valuation Services team, combining judgement, technology and proprietary asset class data, stands ready to assist in delivering fair value determination responsibilities. Through tech-enabled solutions, Kroll can support the daily valuation frequency for any operating model.

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