If your fund holds equity it cannot yet sell — a post-IPO lock-up position, a warrant picked up alongside a credit deal — the Financial Accounting Standards Board (FASB) just changed how you have to value it. On September 9, 2026, FASB issued Accounting Standards Update (ASU) 2026-03, which requires investment companies within ASC 946’s scope to build the sale restriction into the fair value of the restricted equity securities they hold.
Key Takeaways
- Effective for annual reporting periods beginning after December 15, 2027; early adoption is permitted for any period on or after September 9, 2026.
- Applies to any investment company within ASC 946’s scope holding equity subject to a contractual sale restriction — not just private equity and venture capital funds.
- Business development companies and other credit funds holding lock-up equity or warrants from a portfolio company’s IPO are squarely in scope.
What FASB Changed
Before ASU 2026-03: A sale restriction was treated as a feature of the fund holding the security, not the security itself — so a restricted share and an identical unrestricted share carried the same fair value.
Now: If a fund cannot sell a security on the measurement date because of a contractual restriction — a post-IPO lock-up, for example — it must apply a discount reflecting what a market participant would demand for taking on that restriction. FASB did not prescribe a valuation model or a standard discount size; it depends on the restriction’s remaining term, transfer rights, any conditions that could cause it to lapse, and the underlying security’s volatility and liquidity.
The requirement applies across Level 1, 2 and 3 of the fair value hierarchy, but not to restrictions already captured in a separate arrangement, such as securities pledged as collateral — see the checklist below. All other entities continue to apply ASU 2022-03 and disregard contractual sale restrictions.
Why This Matters Beyond Private Equity and Venture Funds
Most coverage of ASU 2026-03 treats it as a private equity and venture capital issue, but the reach is broader. Business development companies (BDCs) and other credit funds that pick up equity co-investments, warrants, or restructuring equity alongside a debt deal can hold the same kind of restricted position once a portfolio company goes public — and now owe it the same discount analysis as a venture fund’s lock-up position.
For open-ended funds, the change touches net asset value (NAV), subscription and redemption pricing, management fees, incentive allocations, and reported performance. Because NAV is set on a transaction date, an investor who redeems while a restricted position is overstated walks away with more than their economic share — the remaining investors absorb the difference. Getting the discount right, and on time, is a matter of investor parity, not just compliance.
Effective Date and Transition
Transition is prospective. On the adoption date, apply the new measurement to all restricted equity securities held, recognize any resulting adjustment in current-period earnings, and disclose the change in the period of adoption — for both public and nonpublic investment companies. ASU 2026-03 is effective for annual reporting periods beginning after December 15, 2027.
Prepare for Adoption Now
Start by inventorying every contractual sale restriction across your equity holdings, and separate true contractual restrictions from legal or regulatory ones — the latter were already reflected in fair value before this update. From there:
- Confirm whether any restriction’s economic effect is already captured in a separate arrangement, such as a pledge, to avoid double-counting the discount.
- Select and document a valuation method for each restriction and calibrate the market-participant assumptions, as the valuation committee will need to support their process, and the auditors and administrators will request that support.
- Model the effect on NAV, fees, and performance or incentive allocations before the first reporting period under the new guidance, particularly if early adoption is under consideration.
- Update disclosure controls to capture the discount amount required under the new guidance, alongside existing restricted-security disclosures.
How We Guide You Forward
Cherry Bekaert’s Asset Management professionals help investment managers, valuation committees, and boards of directors work through fair value and disclosure changes like ASU 2026-03. You may not have expected to be affected by this update, but you do not have to navigate it alone — contact our professionals to discuss how the new guidance applies to your holdings and reporting timeline.
