ASC 820 for LP Investors: How to Know Your Fund Valuations Are Accurate
Author: Redwood Valuation Content Team
Published: June 29, 2026
Every quarter, your fund reports a fair value for each investment it holds. You don't need to master the accounting behind those numbers. What you need is confidence that they're sound, because those values drive how you read the fund's performance and how you allocate the rest of your portfolio.
That's what ASC 820 is for. It's the accounting standard that governs how your fund manager determines the fair value of its investments. You don't have to learn it in depth. But understanding a few things about how fair value is measured, and who measures it, tells you most of what you need to know about whether the numbers you're handed can be trusted.
Why Your Fund's Valuations Matter to You
The fair values in your reports do two jobs for you as an LP.
First, they tell you how the fund is performing. They're the basis for reported returns and net asset value (NAV), and they shape your read on whether the manager is doing well with your capital.
Second, they feed your own asset-allocation decisions. The value of your fund interest is one input into how much exposure you carry to private investments relative to everything else you hold.
That's why getting these values right matters in both directions. If values are overstated, performance looks better than it really is. If they're understated, you get the opposite problem: your reported exposure to the asset class is lower than your real exposure, and you can end up more concentrated in private investments than you ever intended. Sound, well-supported fair values give you a clearer picture of both the fund and your own portfolio.
What ASC 820 Actually Is
ASC 820 is the standard that defines fair value and sets out how to measure it under U.S. accounting rules. Two points are worth knowing.
First, fair value is an exit price: what the fund could sell an investment for in an orderly transaction between market participants on the measurement date. Not what the fund paid, and not what management hopes it's worth. It's measured using the assumptions market participants would use to price it, not the fund's own optimistic view.
Second, ASC 820 doesn't decide when your fund has to report at fair value. That's ASC 946, the standard for investment companies, which requires funds like yours to carry their holdings at fair value. ASC 946 says who must report and when; ASC 820 says how to measure.
Many venture capital and private equity investments fall within what ASC 820 calls Level 3: holdings whose value rests on significant unobservable inputs, the assumptions a fund has to develop itself when observable market data isn't available, rather than on a quoted price. That isn't a flaw. It's the nature of private investing. But it does mean the quality of the judgment behind each number matters a great deal, which brings us to who is making that judgment.
Who Determines the Value, and Why It Matters
A fund can determine these values internally. ASC 820 does not require a third-party or independent valuation; it requires a fair value measurement supported by appropriate evidence and judgment. Internal valuations are fully acceptable when they are well supported, and the AICPA Accounting and Valuation Guide, "Valuation of Portfolio Company Investments of Venture Capital and Private Equity Funds and Other Investment Companies," the reference the industry relies on, describes how to do it well. That guide is guidance, not a rulebook. It recommends approaches rather than mandating them, and every situation calls for judgment. Many large funds run internal valuation programs documented well enough to support an ASC 820 measurement and stand up to audit scrutiny.
So the real line isn't internal versus external. It's documented and supportable versus not. General partners often have a strong, well-earned instinct for the value of their companies. They live with these businesses every day. But an instinct that isn't written down and supported isn't something an auditor can rely on. Auditors need to see the formal analysis behind a number: which method was used, what assumptions went into it, and why. Turning a GP's judgment into that kind of supported record is real work, and it isn't the work GPs are in business to do.
Why Many Funds Bring In a Third-Party Valuation
There's a structural reason internal valuation can raise questions. Fund managers are responsible for both portfolio management and valuation oversight, which can create the appearance of competing incentives: better-looking performance makes the next fund easier to raise. That doesn't make managers dishonest; it's simply the economics of the business. But it's exactly the kind of appearance that independent valuation removes.
This is why many funds bring in an independent third-party valuation provider. The third party doesn't satisfy a requirement; it adds independent support that LPs and auditors often find reassuring.
For you as an LP, independence is the whole point. An independent valuation firm is expected to apply professional judgment regardless of whether the value comes in higher or lower, which weakens the pull of the manager's incentives on the number you see. It reduces that influence rather than removing it, since the manager still selects and pays the firm and supplies much of the underlying data.
For auditors, what matters isn't who prepared the valuation but how well it holds up: the process behind it, the controls, the documentation, and the support. Whether the valuation is internal or external, the fund's management stays responsible for the fair values in its financial statements; a third party supports that number, it doesn't take it over. A third-party valuation can provide additional independent support that simplifies the audit, because experienced firms use accepted methodologies and document their work the way auditors expect. A well-supported internal valuation can clear the same bar. What slows an audit down is the opposite: a number an auditor has to reconstruct because the analysis behind it was never written down. That kind of back-and-forth pulls the GP away from the work that actually creates returns for you: finding and harvesting good investments.
What to Look For in a Third-Party Valuation
Not every outside valuation carries the same weight. When you're gauging whether your fund's approach is sound, a few markers tell you a lot:
Independence: The valuator's fee shouldn't depend on the result. That's the whole reason to bring one in
Relevant credentials and experience: Look for accredited valuation professionals who have actually valued holdings like yours, not a generalist applying a template. Credentials such as the Accredited Senior Appraiser (ASA), Certified Valuation Analyst (CVA), Accredited in Business Valuation (ABV), or, where relevant, Chartered Financial Analyst (CFA) are common markers, though no single one is required
Documented methodology: The work should be explainable. If the firm can show which approach it used and why, an auditor (and you) can follow it
Third-party work adds cost. For large, complex, or contentious holdings, it usually pays for itself in fewer disputes and smoother audits.
What This Means for You as an LP
You don't need to check the math on your fund's valuations. You do need to know whether the process behind them is sound. A few questions tell you most of what you need:
Are complex or large holdings valued by an independent third party, or only internally?
Are the methods and key assumptions documented, so the numbers can be explained rather than simply asserted?
Is there any sensitivity analysis, some sense of how the value would move if a key assumption changed?
Do the values respond to real developments? Some holdings, like early-stage companies or stable long-duration assets, won't move materially every quarter. But valuations that remain unchanged through significant market or company-specific developments may warrant additional questions.
A few things are worth understanding: holdings whose value stays flat while the market moves, complex positions carried on internal-only valuations, and assumptions that look out of step with reality. None of these means something is wrong on its own, and there's often a sound reason for each.
These are reasonable things to ask about, and a fund that takes valuation seriously will be glad to walk you through them. If the answers stay vague over time, it's fair to ask whether the fund uses an independent valuation firm for its more complex holdings.
The Bottom Line
You don't have to become a valuation expert to be a sharp LP. ASC 820 gives the whole industry a common standard for measuring fair value, and ASC 946 is what brings your fund under it. What protects you is knowing the right questions to ask, about independence, documentation, and whether the numbers respond to the real world.
Redwood works with investment funds on ASC 820 fair value measurement and third-party valuation. If you'd like more confidence in how your fund's holdings are valued, your manager is welcome to reach out to talk through their approach.
Frequently Asked Questions
How often are these valuations updated?
Typically each quarter, alongside fund reporting. A significant event, such as a new financing round, a major operational change, or a sharp market move, can prompt an update in between.
Can I ask how a specific holding was valued?
Yes. You can ask your manager to walk through the methodology, the key assumptions, and whether a third party was involved. Transparent funds expect these questions.
Is fair value what I'd actually receive in a sale?
Not necessarily. Fair value is an estimate at a point in time under ASC 820's market-participant standard. An actual sale depends on timing, negotiation, and conditions on the day, so the two can differ.
Do all funds have to follow ASC 820?
Any fund required to measure its investments at fair value does. For funds that qualify as investment companies under ASC 946, which covers most venture, private equity, and hedge funds, ASC 946 requires fair value measurement and ASC 820 governs how that fair value is determined. Funds that report under international standards (IFRS) apply the parallel standard, IFRS 13, instead.
What if I disagree with a valuation?
ASC 820 doesn't resolve disputes; your fund agreement governs that. In practice, you can ask for the supporting documentation and assumptions, and for complex holdings you can ask whether the fund uses an independent valuation firm, and request that it do so if it doesn't. The manager retains discretion within the bounds of the standard, but a willingness to show its work is itself a good sign.