SEC urges greater scrutiny of private asset valuations
The US Securities and Exchange Commission has issued a reminder to asset managers, auditors and other market participants to strengthen their approach to valuing private assets and explaining those valuations to investors as liquidity pressures across private markets increase, according to a report by Bloomberg.
The US Securities and Exchange Commission (SEC) has urged asset managers, auditors and other market participants to bolster their methods for assessing and disclosing the value of private assets, in light of rising liquidity pressures in private markets, according to Bloomberg. The SEC's Office of the Chief Accountant and Division of Investment Management, in a joint statement, does not introduce new mandates but emphasizes existing duties concerning fair-value measurement and disclosure.
The regulator expects firms to uphold robust valuation policies and procedures, and furnish investors with significant insights into the assumptions, judgments, and risks embedded in private asset valuations. This guidance arises as private market managers strive to broaden access to private investments for individual investors and retirement savers, while grappling with longer holding periods and heightened investor demand for liquidity.
Private credit warrants special consideration due to the potentially illiquid nature of the markets and the absence of readily observable market prices for certain loans. Assets held by registered funds in private credit have surged from $170 billion in December 2020 to $270 billion in December 2025, as per the regulator. Liquidity constraints have grown increasingly problematic for private credit funds, with redemption requests compelling some vehicles to limit withdrawals or otherwise curtail investors' access to their capital.
This pressure has also sparked inquiries regarding the assumptions underpinning valuations for assets that are difficult to liquidate.
The SEC's statement also outlines the role of auditors, urging them to scrutinize management's judgments regarding fair-value estimates and evaluate whether these assumptions remain pertinent as market conditions evolve. The regulator highlighted the complexity and judgment involved in valuing private assets, which can heighten the potential for management bias. Consequently, professional skepticism becomes particularly crucial when auditors review financial statements.
Disclosure surrounding investments that are non-accrual or otherwise non-performing may also be crucial for investors, according to the SEC. The agency stressed the importance of providing information on the status of payment-in-kind interest and other factors that could influence an investor's comprehension of an asset's value and performance.
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