SEC Staff Put Private Credit Marks, PIK Income and NAV Shortcuts Under the Microscope

Auditors are told that in periods of market disruption they should revisit whether management’s prior valuation assumptions still reflect what market participants would assume.

September 30, 2026

The SEC's chief accountant and its top investment management official have issued a detailed set of reminders on how private credit and other private assets should be valued and disclosed. The reminders are aimed at BDCs, interval funds, tender offer funds, registered closed-end funds and any other registrant with private credit exposure.

The Sept. 28 statement from Chief Accountant Kurt Hohl and Brian Daly, director of the Division of Investment Management, carries no legal force and creates no new obligations. Instead, it lays out how the staff expects existing requirements under ASC Topic 820 and, for registered funds and BDCs, Rule 2a-5 to be applied as retail access to private credit widens. The staff cited its own data showing private credit in registered fund portfolios grew nearly 60%, from $170 billion in December 2020 to $270 billion in December 2025.

Income Quality Comes Into Focus

Some of the statement's most pointed guidance concerns how funds describe the income their portfolios generate. The staff said modifications, restructurings, extensions and periods of non-accrual may not be visible in high-level portfolio statistics, and that thoughtful disclosure of them helps investors judge the quality of reported income and shifts in portfolio risk.

On non-accruals, the staff pointed to the criteria managers use to classify an investment as non-accrual, when interest accrual stops and how previously accrued but uncollected interest is handled. On payment-in-kind interest, it flagged disclosure of when and how PIK is recognized, whether it is becoming a larger share of reported income and what its prevalence may indicate about borrower health. Such disclosure, the staff said, can help investors separate funds earning cash income from those where a meaningful share of income is capitalized interest that deepens exposure to the borrower.

The staff also cautioned that generic, untailored or overly aggregated Level 3 disclosures may not give investors enough context. Material disclosures should describe the valuation techniques used, significant inputs such as discount rates, credit spreads or comparable transactions, and how changes in those inputs could produce a significantly different fair value.

Valuation Discipline

On the marks themselves, the staff stressed three points:

• Information gaps. Late or thin borrower reporting does not relieve management of its responsibility to estimate fair value. Managers should consider whether the reporting terms negotiated in each deal deliver information often enough to support monitoring and financial reporting.
• Market participant view. Borrower data from the lending relationship, such as payment history and covenant compliance, must be supplemented or adjusted when it differs from reasonably available information a market participant would use, including prevailing credit spreads and liquidity conditions.
• Calibration. Models relying on unobservable inputs must be calibrated to the transaction price at initial recognition. The staff said periodic checks against comparable transactions, public market equivalents, secondary market indications or credit indices may be an important part of a well-functioning process.

Limits of the NAV Practical Expedient

For funds holding interests in other private funds, the staff reminded managers that using investee-reported NAV as a practical expedient is optional on an investment-by-investment basis and available only when its conditions are met. It cannot be used when a sale at an amount different from NAV is probable as of the measurement date, and the resulting measurement may differ from what would be realized in a market transaction.

Whether an investee's NAV is calculated consistently with ASC Topic 946 has typically rested on manager-provided information gathered during due diligence and ongoing monitoring. The staff said registrants should also weigh other reasonably available information, which may change as the secondary market for private fund interests grows, and should document their conclusions.

Auditors in the Frame

The statement asks auditors to apply professional skepticism given the judgment involved and the susceptibility of these estimates to management bias. Where values rest on investee-reported NAV, auditors should test the reliability of investee financial statements and support for any adjustments, and they should not accept evidence that is less than persuasive.

The staff framed the reminders as a shared responsibility of management, boards, valuation designees and auditors.