Definition
The fair-value hierarchy in IFRS 13 and ASC 820 ranks the inputs to a measurement into three levels: Level 1 is unadjusted quoted prices in active markets for identical assets; Level 2 is other observable inputs — including quoted prices for similar assets, or for identical assets in markets that are not active; Level 3 is significant unobservable inputs. Most private credit is Level 3, because the spread, recovery and discount rate that drive the mark cannot be read directly from a market. Level 3 carries the heaviest disclosure burden — a description of the valuation technique, the unobservable inputs, and a sensitivity analysis.
Why it matters in private credit valuation
- Level 3 is where auditor and committee scrutiny concentrates, because the inputs are judgement rather than observation.
- The defensible answer to that scrutiny is a sensitivity analysis and a reproducible model — showing how the mark moves with its inputs, and that it can be rebuilt from the recorded assumptions.
Related
Glossary terms
On markst
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markst values private credit independently on a published, reproducible methodology — marks an auditor and an LP can read straight through. Request access or book a demo. You can also read the valuation methodology or see Verus, the valuation engine.