How Regulated Funds Value Private Credit: A New Resource from ICI

Private credit is one of the fastest-growing segments of today’s capital markets. These loans—made by funds and other investors—were once the domain of large institutions, but regulated funds are increasingly making them available to everyday investors. With that growth come important questions about how funds determine what these assets are worth.

ICI’s new white paper, Valuation Governance Considerations for Private Credit Assets in Regulated Funds, explains how the fund valuation process works, what governance structures support it, and how funds tailor their approach to different portfolios and fund structures. Though markets, tools, and methodologies are always evolving, this paper is a comprehensive description of where the industry stands today and points toward where it’s headed. It’s designed to be a resource for ICI members, regulators, policymakers, and anyone seeking to understand how regulated funds value private credit.

The paper was developed through ICI’s Security Valuation Operations Committee’s Private Credit Working Group, whose members shared substantive feedback and practical experience from their own valuation programs. Outside experts—including valuation specialists, accounting firms, and a law firm—provided technical and legal review. The result distills how the industry approaches this work. It is a resource that only an organization with ICI’s convening power and industry-wide reputation could produce.

Why This Matters Now

While business development companies (BDCs) have invested in private credit for decades, other regulated fund types—interval funds, tender offer funds, and listed closed-end funds—have expanded into the space. At the same time, policymakers are exploring ways to give 401(k) investors access to private market assets, which could significantly broaden the investor base for funds that hold private credit. The Department of Labor’s recent proposal identifies valuation as one of six factors that a plan fiduciary must consider in evaluating a designated investment alternative. 

How Valuation Works

Quality valuation involves more than assessing (potentially infrequent) trade data for a given investment—regulated funds use a range of tools and information sources. Most homeowners have a good sense of what their home is worth, even if it hasn’t been on the market in years. They track comparable sales, they know the condition of the property, they follow local trends. Funds adopt a similar approach to private credit—analyzing borrower financials, market conditions, and comparable transactions to arrive at a fair value. Unlike your typical homeowner, however, regulated funds value assets through a disciplined process, governed by regulatory requirements and oversight.

Here’s what that looks like in practice. Consider an interval fund that holds a loan to a mid-market company. At origination, the fund’s investment adviser prices the loan by projecting the borrower’s expected payments and assessing the risk that those payments don’t arrive as planned. At the next scheduled review, the borrower’s financials are in line with expectations and market conditions for similar loans haven’t changed meaningfully, so the valuation holds. Some time later, the borrower reports a revenue shortfall, triggering a violation of a loan covenant. The fund’s valuation team flags the development and reviews updated financials, and they might consult with the fund’s third-party pricing agent. The loan is marked down, the adjustment is documented and escalated through the fund’s valuation committee, and this is captured in board reporting. Fund investors then transact at a lower price that reflects updated information about the loan’s value.

Checks and Oversight

Fund governance contributes to the rigor of this process. The SEC’s valuation rule imposes specific valuation requirements on regulated funds and contemplates that the fund’s investment adviser will perform the day-to-day valuation work, subject to continued board oversight. Valuations are also subject to independent annual audits, and the SEC regularly examines funds and can take enforcement action when appropriate.

Between formal valuations, funds track market-wide signals—interest rates, credit spreads, changes in performance of similar loans, etc.—alongside borrower-specific developments such as financial performance, covenant compliance, and other material events. These inputs feed an ongoing monitoring process: does the current valuation still hold or does the fair value need to change?

Different fund types calibrate this work differently. An interval fund with a large private credit position and frequent investor activity may update valuations monthly, with ongoing daily monitoring. A listed BDC on a quarterly reporting cycle may follow that schedule while monitoring closely throughout the period. A diversified mutual fund with a small private credit allocation can scale its oversight to reflect the limited impact of that allocation on overall NAV. The framework is the same; what differs is how funds apply it.

A Continuing Commitment

Beyond these core areas, the paper examines benchmarking tools, the role of third-party valuation providers, back-testing practices, and how evolving market infrastructure—better data, growing secondary market activity, and advances in generative AI—is shaping valuation practices going forward. It goes beyond high-level principles to specifically address how regulated funds value private credit.

While valuation involves judgment, it is performed within a structured framework designed to promote consistency, transparency, and accountability. As private credit markets continue to grow and more investors gain access to private assets through regulated funds, maintaining robust and well-governed valuation practices will remain essential. ICI will continue to lead and support industry efforts to promote investor confidence in these markets.