SEC Staff Guidance Puts Private Credit Marks Under Audit Review
A non-binding SEC staff statement tells auditors how to test $270 billion of private credit in registered funds, just as defaults hit a record 6.3% and the 10-year yield tops 5.2%. Australia showed the result the same day: an auditor's downside weighting cut fund values by up to 12%. The desk expects markdowns in audited accounts filed by March 2027.
Private credit's marks are about to be tested by the people who sign the audits. On September 28 the Securities and Exchange Commission's chief accountant, Kurt Hohl, and its investment management director, Brian Daly, issued a staff statement on how those loans should be valued. It creates no new rule, carries no legal force and imposes no mark-to-market mandate. Its practical effect may be greater: auditors signing December fund audits now have the most consequential SEC guidance on private credit issued this year.
The statement addresses the year-end audit cycle. It tells fund accountants to calibrate private credit marks to credit indices, secondary market prices and comparable transactions, rather than lean on a manager's reported net asset value as though it updates itself. Under the accounting rule that governs these positions, ASC 820, a fund can set an initial mark at the transaction price, but the statement is explicit that the mark then has to be reassessed against how comparable public credits and secondary indications have moved since. It asks for disclosure of loan modifications, amend-and-extend deals, non-accruals and payment-in-kind interest, the practice of paying a loan's interest with more debt instead of cash. It also narrows the shortcut funds use most: the NAV practical expedient, which lets a fund adopt a manager's reported value instead of estimating fair value itself. The statement reminds funds that the expedient is optional investment by investment and cannot be used once a sale at a different price looks probable, and that secondary market data should inform the decision either way.
These are not new legal requirements. They give auditors a checklist for questions to put to private credit managers this winter, whether they oversee closed-end funds, interval funds, tender-offer funds or business development companies.
The category has grown fast enough to matter. Private credit inside SEC-registered vehicles rose from $170 billion in December 2020 to $270 billion in December 2025, nearly 60% in five years. Most of that growth happened while defaults were low and each quarter's mark could plausibly equal the last one plus accrued interest. The SEC's statement arrives as that assumption becomes harder to defend.
Fitch put the trailing 12-month US private credit default rate at 6.3% through August, a record, up from 6.1% a month earlier. The 10-year Treasury yield closed Monday at 5.241%, its highest since 2007. Calibrating a private loan to comparable public credit and prevailing spreads, exactly what the statement asks auditors to do, means marking against a rising discount rate and a rising default rate at once. Together, those changes put downward pressure on valuations.
Although the staff statement is non-binding, auditors already operate under PCAOB Auditing Standard 2501, which requires professional skepticism when a fair value assumption rests on data that cannot be independently verified, and calls for more of it in times of market disruption. The SEC has now told auditors of private credit funds where to apply that skepticism: manager-reported NAV, PIK income and non-accrual status. The standard already exists, so no rule change was needed. The statement removes any excuse for ignoring it.
Australia supplied a preview of what applying it looks like, on the same day the SEC statement came out. Metrics Credit Partners, an Australian manager overseeing roughly A$35 billion to A$40 billion, suspended trading in three ASX-listed funds after its auditor, KPMG, put more weight on downside scenarios in the valuation models. Net tangible assets fell 12.16% at the Metrics Real Estate Multi-Strategy Fund and 10.08% at the Metrics Income Opportunities Fund, a roughly A$170 million write-down across trusts with a combined market value just under A$3 billion. The auditor's weighting did the work, and the funds stopped trading on the exchange as a result. The SEC statement points American auditors toward the same sequence: reassess assumptions that have gone unchallenged for years, with markdowns potentially large enough to force a trading halt.
A year ago, there was little market data for comparison. Secondary market volume in private fund interests has since risen 42%, from about $156 billion in 2024 to $220 billion in 2025, according to William Blair. This is the kind of external pricing evidence the SEC wants auditors to use alongside a manager's internal model. Its growth weakens the argument that private credit marks have no market prices to check against.
Michael Burry's arrival as senior adviser to Minerva Investment Management, a new short-biased fund targeting private credit risk in healthcare, retail, restaurants and smaller banks, has drawn more attention than the accounting mechanics. Minerva founder Laks Ganapathi says the coming strain could be worse than 2008. The desk sees short sellers as a symptom of the conditions the SEC statement addresses, rather than the cause of repricing now beginning in the audit process.
The marks will move inside audited financial statements, the document that actually binds a fund's books. Registered funds with December fiscal year ends file those statements between February and March 2027, and that is when calibrated marks, PIK disclosure and non-accrual detail the statement asks for will show up in the numbers. Retail-facing vehicles, non-traded BDCs and interval funds that let investors redeem only in limited windows, will feel the resulting pressure first, because their investors can react to a markdown in a way a locked-up institutional limited partner cannot. Interval funds typically offer redemptions on a quarterly schedule capped at a fixed share of assets, so a marked-down NAV that triggers a wave of redemption requests can exhaust that quarter's capacity quickly, pushing remaining investors into the next window at a price the audit has already flagged as stale. The funds that delay recognizing those marks until the audit forces the issue will be the ones explaining a sudden NAV cut to investors who filed their redemption request a quarter too late.