Financial Reporting
SEC Staff on Private Asset Fair Value: Calibration, NAV and Your Year-End Marks
The SEC staff's September 28 statement on private asset fair value targets calibration, the NAV expedient and boilerplate. What to fix before year-end marks.
By 409.AI Team - 2026-10-02
# SEC Staff on Private Asset Fair Value: Calibration, NAV and Your Year-End Marks
Your fund bought into a Series B eighteen months ago at $40 million post-money. The company has since doubled revenue. Nothing has traded, no new round has priced, and the December 31 mark is due in eight weeks. The number you write down is a judgment, and on September 28 the SEC staff published a detailed account of how that judgment gets tested.
The document is the [Statement on Fair Value Measurement and Disclosure Considerations for Private Assets](https://www.sec.gov/newsroom/speeches-statements/hohl-daley-statement-fair-value-measurement-disclosure-considerations-private-assets-092806), from Chief Accountant Kurt Hohl and Brian Daly, Director of the Division of Investment Management. It reads like a pre-audit checklist for anyone who marks illiquid positions, which makes the timing worth noticing: it landed two days before the September quarter closed, with the year-end audit cycle directly behind it.
This post is for the fund CFO, controller or valuation designee who owns the file those marks sit in.
What the statement is, and what it is not
Start with the limits. This is a staff statement rather than a Commission rule, and the authors say so plainly in their first footnote: it has no legal force or effect, it does not alter or amend applicable law, and it creates no new obligations for anyone.
So why read it closely? Because the ASC 820 paragraphs it cites already bind every entity measuring private assets at fair value under US GAAP, registrant or not. And because the statement is addressed as much to auditors as to preparers. When the Office of the Chief Accountant publishes a list of the places it sees significant judgment, that list has a way of becoming audit procedures in January.
The named audience is wide: registered closed-end funds, interval funds, tender offer funds, business development companies, and private funds registered under the Securities Exchange Act of 1934. The staff adds that the reminders apply to all registrants with private credit exposure. If your venture fund files nothing with the Commission, none of this binds you, and all of it describes the standard of care your auditor has just been reminded of.
Why private credit drew the attention
The staff supplies a number. Private credit inside registered fund portfolios grew nearly 60%, from $170 billion in December 2020 to $270 billion in December 2025, drawn from the Commission's own registered fund statistics.
These are individually negotiated loans that do not trade on an established secondary market, so quoted prices are rare and the measurement runs on significant unobservable inputs. That puts them in Level 3, where the [classification itself drives the disclosure you owe](https://409.ai/articles/asc-820-level-3-classification-significant-unobservable-input). Credit is the worked example throughout the statement, but the codification paragraphs it leans on are method-neutral. Everything below applies the same way to a preferred equity position in a software company.
Calibration is the part with teeth
Here is the rule the staff reaches for first. Under ASC 820-10-35-24C, when subsequent measurement will rely on unobservable inputs, the valuation technique has to be calibrated so that at initial recognition it produces the transaction price. The staff's framing of why: the entry price, where it represents fair value, is a critical reference point for every measurement that follows, and calibrating to it lets you see any gap between what you paid and what your model says the asset is worth.
Skip that step and your model manufactures a gain on day one. Worse, it keeps manufacturing gains forever, because the gap between your model and reality never gets closed; it just rides along inside every subsequent mark.
Run the numbers on the Series B above. You put in $8 million for 20% of the company at $40 million post-money, against $5 million of ARR. Your entry price implies a revenue multiple of 8.0x. The guideline public companies you would naturally benchmark against were trading at 11.0x at the time.
Calibration says you do not get to use 11.0x. You solve for the input that reproduces the $8 million you actually paid, and 8.0 divided by 11.0 gives you 0.73. That company-specific adjustment of roughly 27% against the public set is now a calibrated input, and you carry it forward.
Eighteen months on, ARR is $10 million and the public set has compressed to 9.0x. Two ways to finish:
Uncalibrated, you take 9.0 times $10 million for a $90 million equity value, and your 20% is worth $18 million. You just booked a $10 million gain.
Calibrated, you take 9.0 times 0.73 for a 6.5x multiple, which gives $65.5 million, and your 20% is worth $13.1 million. The gain is $5.1 million.
The $4.9 million of difference was never performance. It was the distance between your model and your own purchase price, recognized as profit. In a real file you would allocate that equity value across the preference stack rather than taking a flat 20% slice, which is its own exercise in [choosing between OPM, PWERM and a backsolve](https://409.ai/articles/409a-allocation-methods-opm-pwerm-backsolve). The calibration point survives either way. A backsolve is calibration wearing different clothes.
When the entry price stops being evidence
Calibration anchors you to the last transaction, which raises the obvious problem: how long does that anchor hold?
Not indefinitely, and this is where the staff is most pointed. ASC 820-10-35-54A requires you to take into account all information about market participant assumptions that is reasonably available. The staff asks for periodic reassessment of whether your model output still squares with available market evidence, and it lists what to look at: comparable transactions, public market equivalents, secondary market indications, relevant credit indices.
An eighteen-month-old round fails that test in several directions at once. The rate environment has moved. The rights package you hold may differ from what later money negotiated, and if the company ran a [pay-to-play recapitalization](https://409.ai/articles/pay-to-play-recapitalization-409a-cram-down-cap-table) in between, the preference stack you were valuing no longer exists. Carrying that round forward because nothing has repriced is not calibration. It is the absence of it.
The discipline is unglamorous: document what you looked at each quarter, document what moved, and document why the calibrated inputs still hold or how you changed them. A file that shows the same three sentences for six consecutive quarters is the one that gets expanded testing.
The NAV practical expedient is a choice, not a default
The second substantive section covers something fund-of-funds and LP-interest holders do almost reflexively: taking the investee fund's reported NAV as fair value.
GAAP does permit it. The conditions sit in ASC 820-10-15-4 through 15-5 and ASC 820-10-35-59, and they are narrower than the habit suggests. The investment must lack a readily determinable fair value, it must be an interest in an investment company within the scope of [ASC 946](https://409.ai/articles/asc-946-investment-company-venture-fund-financial-statements), and to use the NAV without adjustment that NAV has to be as of your measurement date and calculated consistently with ASC 946's measurement principles.
Then the condition most likely to bite. Under ASC 820-10-35-62, you cannot use the expedient at all if, as of your measurement date, it is probable you will sell the investment for an amount different from NAV. Secondary pricing for LP interests has become real and observable, so a position you are actively shopping at 85 cents on the dollar is not a position you mark at NAV. The same logic drives a [continuation vehicle that prices below your last NAV](https://409.ai/articles/continuation-fund-price-below-nav-asc-820-quarter-end-mark): once a price exists, it is evidence.
The staff adds two reminders worth writing into your valuation policy. The expedient is optional on an investment-by-investment basis, so electing it for one position commits you to nothing elsewhere. And management keeps responsibility for concluding the criteria are met, which cannot be delegated to the investee's reporting package. The staff asks for an iterative, evidence-based assessment: identify the relevant information, including investee-level policies and controls and secondary-market data, evaluate what it means for the conditions, and document the basis for the conclusion.
The staff used the word boilerplate
Disclosure gets its own section, and the language is blunt. ASC 820 already requires a description of the valuation techniques used, quantitative information about the significant unobservable inputs, and a narrative on how different inputs could have produced a materially different number. The staff's observation is that disclosures which are untailored, written in boilerplate, or presented on an overly aggregated basis may not give investors enough context about the techniques and inputs behind the measurement.
Two specifics come up that are easy to under-disclose. Non-accrual policy is one: the criteria for classifying an investment as non-accrual, when interest stops accruing, and the treatment of previously accrued but uncollected interest. PIK interest is the other, including when it is recognized and how much of reported income it now represents. The staff's reasoning is that investors should be able to tell the difference between a fund earning cash and a fund whose income is [capitalized interest increasing its exposure to the same borrower](https://409.ai/articles/cumulative-pik-dividends-preferred-stock-409a-asu-2026-01).
What your auditor has been told to do
The closing section is a reminder to auditors that these estimates are susceptible to management bias and call for professional skepticism. It cites PCAOB AS 2501 on auditing accounting estimates and AS 1105 on audit evidence, and tells auditors not to accept less than persuasive evidence.
One sentence deserves your attention more than the rest: in times of market disruption, an auditor should reconsider whether management's reliance on prior assumptions is consistent with market participant assumptions as of the reporting date. Read from the preparer's chair, that is notice that last year's memo will not carry this year's mark. Private fund audits follow AU-C 540 rather than the PCAOB standards, and the [assumption-level testing works the same way](https://409.ai/articles/first-audit-409a-valuation-au-c-540-assumptions).
Before December 31
Three things are worth doing while there is still time to do them properly.
Pull the calibration documentation for your five largest Level 3 positions and check whether each one ties your current model back to the entry price, with the gap explained. If a position was marked by rolling forward a round price, that is the one to fix first.
List every position carried at investee NAV and confirm the ASC 820-10-35-62 question has actually been asked and answered in writing. The positions you have quietly started to shop are the ones that fail it.
Read your own fair value footnote next to the staff's description of boilerplate, and find the sentence that would be true of any fund holding any asset. That sentence is where your auditor will start.
None of this changes what your portfolio is worth. It changes whether the number you report can be defended by something other than the memory of what you paid. That distinction is the whole of a valuation file, and it is what [409.AI's ASC 820 portfolio valuations](https://409.ai/products/asc-820) are built to produce.