Financial Reporting

When a Fund Can Use a Manager's NAV as Its Mark: The ASC 820 Practical Expedient

Fund CFOs and controllers: when ASC 820's NAV practical expedient lets you carry an LP interest at the manager's NAV, and what auditors check at year end.

By 409.AI Team - 2026-10-10

# When a Fund Can Use a Manager's NAV as Its Mark: The ASC 820 Practical Expedient

If your fund holds limited partner interests in other private funds, the statement your underlying manager sends each quarter is probably the biggest number in your mark. The ASC 820 practical expedient lets you use that net asset value per share as fair value without building your own model. It is optional, it has conditions, and the SEC staff's September 28, 2026 statement on private asset fair value put a spotlight on how carefully those conditions get checked. This article is for fund CFOs, controllers and administrators who sign off on marks for fund-of-funds, secondaries and feeder structures, and for the auditors reading their files.

What the expedient actually says

ASC 820-10-35-59 allows a reporting entity to measure the fair value of an investment using the investee's NAV per share (or its equivalent) when two things are true. The investment has no readily determinable fair value, and the investee is an investment company under ASC 946, or reports NAV on a basis consistent with it. The FASB introduced the expedient in ASU 2009-12 and, in ASU 2015-07, removed the requirement to place investments measured this way in the fair value hierarchy.

Three points get missed in practice.

First, the election is optional and made investment by investment. You can use the expedient for one LP interest and a full valuation for the next. Management still has to conclude, and document, that the criteria are met.

Second, the expedient is a shortcut for the measurement, not a different definition of fair value. The SEC staff's statement says plainly that using NAV may produce a number that differs from what a market participant would pay on the measurement date. That difference is exactly why the conditions exist.

Third, the NAV must be calculated consistently with ASC 946, which means the manager measured substantially all of its own underlying investments at fair value under ASC 820. A manager who carries positions at cost, or on a tax basis, is not producing a NAV you can lean on.

The test is on the measurement date

The reported NAV can be used without adjustment only if it is as of your measurement date. Most fund-of-funds do not have that luxury at quarter end. Underlying managers report 30 to 90 days late, and a December 31 audit often runs on a September 30 statement plus whatever cash moved afterwards.

Here is a worked example. Your fund holds an interest in a buyout partnership. The latest statement shows your capital account at $4,000,000 as of September 30. Between then and December 31 you funded a $500,000 capital call and received a $300,000 distribution. Rolling the statement forward gives $4,200,000. That is a common starting point, but it is not yet a fair value. It tells you what the account would be if nothing changed in the underlying portfolio for three months.

If the manager has since marked its holdings, or public comparables have moved, or a major portfolio company has been sold or written down, then $4,200,000 is a stale number with correct arithmetic. ASC 820-10-35-60 asks you to consider whether an adjustment is necessary when the NAV is not as of the measurement date or is not calculated consistently with ASC 946. Once you adjust, you are no longer using the expedient as written. Such an interest is generally categorized in the fair value hierarchy, usually Level 3, and the Level 3 disclosures apply, with the unobservable inputs described. Our guide to [Level 3 classification and significant unobservable inputs](https://www.409.ai/articles/asc-820-level-3-classification-significant-unobservable-input) covers what that disclosure has to contain.

When the expedient is off the table

Two situations take the shortcut away entirely.

The interest has a readily determinable fair value. A listed fund or a feeder with an observable price is measured at that price.

A sale at a price other than NAV is probable. If you have a signed term sheet, a live bid or an active process to sell the interest in the secondary market, the transaction price is better evidence of fair value than the NAV. A fund that holds an interest at $4,200,000 while negotiating a sale at $3,600,000 has a problem the auditor will find. The same logic runs through the way a [continuation fund price below NAV](https://www.409.ai/articles/continuation-fund-price-below-nav-asc-820-quarter-end-mark) must be treated at quarter end.

Secondary activity matters even when you are not selling. The SEC staff noted that the information reasonably available about a manager's NAV may grow as the secondary market for private fund interests expands. Bids you have seen, trades you have heard about and pricing from other holders in the same vehicle are all things a reviewer can ask whether you considered.

Assessing whether the NAV is consistent with ASC 946

You rarely audit your underlying manager, so how do you conclude their NAV is reliable? The SEC staff described an iterative, evidence-based process, and a defensible file usually includes:

The manager's audited financial statements, and whether the opinion is clean. Compare the last audited NAV to the last reported NAV to see how often interim figures were revised.
The manager's valuation policy, and whether it follows ASC 820 for the underlying positions. The [fund valuation policy](https://www.409.ai/articles/fund-valuation-policy-asc-820-audit-sec-exam) your own auditor expects to see has the same structure.
Results of your own diligence calls and any notice of a change in the manager's methods.
A back-test: for exits during the year, how did sale prices compare with the last reported value?
Anything you know that the manager's statement does not reflect.

The back-test is the strongest single piece of evidence and the one most often skipped. If a manager's exits consistently price 15 percent below its reported marks, a reported NAV without adjustment is hard to defend, even when every statement is on time.

Disclosures that follow the expedient

Because the interest sits outside the hierarchy, it appears as a reconciling line so that the hierarchy table totals to the balance sheet. ASC 820-10-50-6A then asks for the fair value of the investments measured with the expedient, grouped by category, together with the nature of the redemption terms, any restrictions on redemption, unfunded commitments, and the circumstances in which restrictions may lapse. An investor in a private equity partnership with no redemption right should say so, along with the expected life of the vehicle.

Funds that hold both kinds of interests, some with the expedient and some adjusted, need to keep the two populations clearly separated in the footnote. Mixing them is a common comment from reviewers.

A single-position vehicle is a different case

The expedient assumes a diversified pool of investments reported at NAV. A special purpose vehicle that holds one company's stock does not fit that picture well, and its manager may not provide NAV information at all. That situation is handled in our piece on an [SPV holding a single position without information rights](https://www.409.ai/articles/spv-single-position-fair-value-asc-820-no-information-rights), where the valuation is built from the underlying company.

What to put in the file before the audit

The test the auditor applies is whether you can show that the conditions were met at the measurement date, not only that you received a statement. A short memo per interest should record:

1. The election: expedient used, or not, and why. 2. The date of the NAV and the roll-forward of capital activity to the measurement date. 3. The evidence that the NAV is consistent with ASC 946, including the back-test. 4. Any adjustment considered, the information behind it and the conclusion, even when the conclusion is none. 5. Any secondary-market evidence seen, and why it does or does not change the mark.

If you carry interests whose NAV you cannot support, the cleanest answer is a fair value built from the underlying positions, which is the work a valuation specialist does under [ASC 820 fund and portfolio valuation](https://www.409.ai/articles/asc-820-level-3-fair-value-fund-portfolio-valuation). The [SEC staff's calibration statement](https://www.409.ai/articles/sec-staff-statement-private-asset-fair-value-calibration-nav) explains why that evidence needs to be on file before a comment letter or an exam asks for it. For funds regulated under the 1940 Act, the process also has to line up with the four functions in [Rule 2a-5](https://www.409.ai/articles/sec-rule-2a-5-fair-value-process-private-fund-valuation-policy).

The practical takeaway: before year end, list every LP interest you plan to carry at reported NAV, note the date of its latest statement, and start the roll-forward and back-test now. The ones with a gap longer than a quarter, or with a sale in view, are the ones to resolve first. If you want a second set of eyes on the underlying positions, our [ASC 820 valuation service](https://www.409.ai/products/asc-820) starts at $2,999 for one to five assets.