ASC 820 Portfolio Valuation: What Fund Managers Need to Know

Understanding ASC 820 Requirements

ASC 820 (formerly SFAS 157) establishes a framework for measuring fair value in financial statements. For fund managers, this means every portfolio investment must be measured at fair value using a three-level hierarchy: Level 1 for quoted prices in active markets, Level 2 for observable inputs, and Level 3 for unobservable inputs. Most private fund investments fall squarely into Level 3, requiring significant judgment in selecting valuation approaches, calibrating inputs, and documenting methodology — exactly the areas where auditors focus their scrutiny.

The Fair Value Hierarchy in Practice

For venture capital and private equity funds, Level 3 valuations require applying market, income, or asset-based approaches with carefully calibrated inputs. This includes analyzing comparable public company multiples, recent transaction data, discounted cash flow projections, and option pricing models for complex capital structures. The challenge is not just arriving at a defensible number — it's documenting the methodology thoroughly enough to satisfy audit requirements while maintaining consistency across reporting periods. Quarterly and monthly reporting cadences add operational complexity that many fund administrators underestimate.

Selecting the Right Valuation Partner

Fund managers should evaluate valuation providers on three dimensions: technical capability, operational fit, and audit relationship. Technical capability means the provider understands your asset class, whether that's early-stage venture, growth equity, private credit, or a mixed portfolio. Operational fit means they can meet your reporting cadence — quarterly marks require a fundamentally different workflow than annual valuations. And audit relationship matters because a provider who coordinates directly with your auditors on methodology and workpapers can save weeks during audit season and reduce the risk of audit adjustments.