Key Takeaways
- The SEC announced an enforcement settlement with an investment manager related to COVID-era loan valuations, as well as a roundtable on private markets valuation.
- Although the settlement could appear to be questioning the valuation of the loans at issue, a key takeaway is a reminder for investment managers to document how their valuation processes address new information, particularly during significant market events.
- The roundtable, scheduled for March 4, connects the theme of valuation to “retail exposure to alternative investments becoming more common.”
- Taken together, these announcements suggest that SEC leadership views valuation processes as a key consideration, particularly as investment managers seek to broaden opportunities for retail investors.
Upcoming Roundtable
The SEC’s Division of Investment Management will host the roundtable from 1 p.m. to 3 p.m. ET on Wednesday, March 4. Brian Daly, the Division’s Director, stated that, “[w]ith retail exposure to alternative investments becoming more common, we want to help everyday investors understand the different valuation approaches used in these products.”
The Roundtable will include two panels. The first will focus on the “opportunities and challenges” of greater private market access. The second will focus on fund governance related to private market assets, including as it relates to the SEC’s fund valuation rule (Rule 2a-5).
Settlement Summary
On February 25, 2026, the SEC announced an enforcement settlement with a private fund adviser regarding its pricing of loan sales made at the outset of the COVID-19 pandemic and related market disruption.1 The loans sold to the funds were allegedly originated by the adviser prior to the market disruptions. The settled order indicates that certain sales were in connection with “season and sell” transactions.
According to the Order, the advisory agreements with the funds required that all transactions between the adviser and the funds be “no less favorable to [the funds] as the terms [they] would obtain in a comparable arm’s length transaction with a non-Affiliate.” Additional fund disclosure stated that the adviser would make these transactions at “fair value as reasonably determined by [the adviser] without any third-party valuation” and that the purchase price paid by the funds for loans acquired from the adviser would be “an amount equal to the fair market value thereof as reasonably determined by [the adviser], consistent with applicable law and without third-party valuation.”
The adviser’s valuation policy stated that the adviser’s purchase price, less the unamortized loan fee or discount at the time of the transfer, would be used as the price for the sale of a loan, or portion thereof, “subject to market adjustments that may be made in [the adviser’s] sole discretion.”
According to the order, the adviser executed 143 sales to the funds between March 2020 and May 2020 at par value less the amortized loan fee. Each of the transactions was disclosed to an independent third party that provided consent based on a certification from the adviser that: (1) the purchase was being conducted on an arm’s length basis in accordance with the adviser’s management agreement, and (2) based on current market conditions, the adviser believed the acquisition to be at fair market value. All but one of the 143 loans sold during the relevant period either continue to perform or have been fully paid by the borrowers.
The SEC framed the settlement as an alleged breach of fiduciary duty related to the disclosures to investors and an alleged failure to determine the effect of the COVID-19 market disruption on the fair market value of the loans sold to the funds, without otherwise detailing how the conduct met the elements of these alleged violations. To settle the action, the adviser paid a $900,000 penalty. The order also noted that the adviser had reimbursed the funds over $5 million in 2021.
The settlement suggests that the SEC views fair valuation as relying on a dynamic process that is proactive in accounting and adjusting for new information. Accordingly, a key takeaway is a reminder for investment managers to document how their valuation processes address new information, particularly where market events may later result in regulatory scrutiny.
