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Yesterday, the SEC’s Chief Accountant and the Director of its Division of  Investment Management issued a joint statement on fair value measurement and disclosure issues relating to private credit assets.  Here’s the intro:

Investment in private assets continues to grow, including for an increasing number of registrants that are required to subsequently measure these investments at fair value, such as registered closed-end funds, interval funds, tender offer funds, business development companies and private funds registered under the Securities Exchange Act of 1934.

The growing accessibility of private assets, including private credit, calls for a critical reminder that registrants maintain rigor over how these assets are valued and how those valuations and asset risk characteristics are disclosed to investors. Likewise, these issues are relevant for auditors who are responsible for evaluating management’s judgments and the sufficiency of a registrant’s disclosures.

This statement offers reminders from the staff of the U.S. Securities and Exchange Commission’s Office of the Chief Accountant and the Division of Investment Management (collectively, the “Staff”), regarding areas of significant judgment under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, and the importance of targeted and transparent disclosure.

The Staff believes that reinforcing existing requirements under U.S. generally accepted accounting principles (“U.S. GAAP”)—and, for certain registrants, including business development companies, the regulatory framework under the Investment Company Act of 1940 (the “Investment Company Act”)—will promote greater consistency and clarity in the financial information provided to investors.

The statement says that private credit investment within registered fund portfolios has increased by nearly 60% over the past five years, and that exposure to private credit assets is not limited to funds registered under the Investment Company Act and BDCs. Accordingly, the statement says that its reminders are relevant to any registrant with exposure to private credit assets.

– John Jenkins