Private Fund Advisers and Universities Should Assess Valuation Protocols and Disclosures in Case the SEC Comes Knocking
Client Alert | July 9, 2025
This update provides a summary of the issue and key takeaways for private fund advisers and their investors, such as universities, to consider.
The U.S. Securities and Exchange Commission (SEC) routinely highlights valuations as a priority area for investment advisers. Now, in a letter dated June 17, 2025 to SEC Chairman Paul Atkins (Letter), Congresswoman Elise Stefanik is urging the SEC to investigate whether the risks associated with “illiquid and leveraged asset holdings, including private equity, venture capital, and real estate” have been appropriately disclosed in the context of a university’s bond offering. We set forth below a summary of the issue, and key takeaways for private fund advisers and universities.
Focus on Valuations – Why Now?
The Letter requests that the SEC open an investigation regarding a prominent university’s recent disclosures in connection with its taxable bond offerings, calling out the “large portion of [the university’s] endowment [] invested in illiquid assets, private equity, venture capital and real estate that are often overvalued due to reliance on internal estimates and outdated transaction data.”
This is not a new issue. For years, including in its most recent 2025 Examination Priorities, the SEC staff has pointed to valuations as a priority area for examination, particularly for private fund advisers who hold “difficult-to-value assets.” The Letter notes that “[i]n today’s environment of elevated interest rates and declining private market valuations, the real, realizable value of these assets is likely far below stated values.”
The Letter comes at a time when the Commission and Chairman Atkins have expressed both a commitment to (i) focusing on retail investors with respect to enforcement efforts and (ii) expanding retail access to private markets. And as illiquid assets, private equity, and venture capital become increasingly mainstream, the SEC will look closely at valuations, and the policies and methods by which they are determined.
What the SEC Looks for When Examining and Investigating Valuations
In reviewing valuations, the SEC has typically focused on the accuracy of the disclosure surrounding how an investment adviser or issuer arrived at particular valuations rather than challenging the valuations head-on.
Nevertheless, the SEC is attuned to the fact that the failure to properly value assets can impact key areas of fund operations and potentially lead to over or under payment of withdrawal proceeds, incorrect calculation of fees, and inaccurate performance reporting.
The SEC expects advisers to value assets in a manner that reflects the current fair value of the portfolio investment assets. GAAP sets forth a definition of “fair value” and a framework for measuring fair value in Accounting Standards Codification 820 Fair Value Measurement (ASC 820). The SEC will look at whether an adviser’s policies and procedures regarding compliance with GAAP were reasonably designed. Universities and institutional investors that hold interests in private funds are generally allowed to rely on what investment advisers say they are worth – the net asset value (NAV). However, the SEC may scrutinize any disclosure about valuations as well as the valuations themselves if there is reason to believe that the adviser or an issuer making disclosures about its holdings did not believe the NAV reflected the fair value of the assets.
Tips for Private Fund Advisers and Their Investors
Among other things, private fund advisers and their investors (such as universities) should consider the following:
- Valuation Policies and Methodology
- Review policies and strengthen valuation policies where appropriate.
- Tread carefully when engaging in frequent changes to valuation policies or procedures or making changes when they seem to work in a certain direction.
- Document the reasons for any changes in policies relating to valuations.
- Clearly document and follow the firm’s valuation methodology.
- Use of Third-Party Valuation Experts
- While many firms use third-party experts to assist in the valuations of illiquid assets, firms should be prepared to defend valuations beyond simply pointing to a third-party.
- Share all material information with third-party valuation firms and avoid any appearance of improperly influencing the outcome.
- Keep in mind that third-party pricing or “marks” from pricing services still need to represent fair value.
- Fair Value
- Applying ASC 820 is a judgment-laden exercise, so it is often an area that the SEC will closely scrutinize during an examination or investigation.
- A good process and documentation of that process is key to withstand such scrutiny.
- Institutional Investors
- For institutional investors, disclosures should adequately reflect the risks associated with illiquid holdings (PE, VC and real estate), especially in the context of a securities offering.
- If an investigation is opened, enforcement staff will look for communications and other evidence that reported valuations do not represent fair value.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update, including any requests for information from the SEC.
Please contact the Gibson Dunn lawyer with whom you usually work with, any member of the firm’s Securities Enforcement, White Collar Defense & Investigations, or Securities Regulation & Corporate Governance practice groups, or the following
Jina L. Choi – San Francisco (+1 415.393.8221, jchoi@gibsondunn.com)
Osman Nawaz – New York (+1 212.351.3940 ,onawaz@gibsondunn.com)
Tina Samanta – New York (+1 212.351.2469, tsamanta@gibsondunn.com)
Mark K. Schonfeld – New York (+1 212.351.2433, mschonfeld@gibsondunn.com)
David Woodcock – Dallas (+1 214.698.3211, dwoodcock@gibsondunn.com)
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