Valuation is typically near the top of the list when the SEC’s enforcement division and exam staff disclose their priority topics for private funds.  We expect that trend to continue and, if anything, the focus on valuation is likely to increase, especially as the market for unicorns shakes out.

That said, the SEC rarely challenges valuations per se, given the significant judgment required to determine the fair value of Level 3 assets.  Instead, the SEC focuses on issues “around” valuation practices, including: (1) breakdowns in controls/policies/procedures; (2) violations of Generally Accepted Accounting Principles (GAAP); and (3) disclosures to investors and auditors.