Portfolio Investment - Fair Value Mark-to-Market (Unrealized Loss / Write-Down)
Recording a downward fair value adjustment on a portfolio investment reflecting deteriorating company performance, market multiple compression, or credit distress.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Net Change in Unrealized Depreciation - Investments | Expense (+) | 3,500,000.00 | - |
| Investments at Fair Value - Portfolio Company C | Asset (-) | - | 3,500,000.00 |
💡 Accountant's Note
When a portfolio company's performance deteriorates (revenue decline, covenant breach, market multiple compression), the fund must write down the carrying fair value. For investment companies under ASC 946, this flows directly through the Statement of Operations as a realized or unrealized loss — there is no separate OCI treatment. A full write-down to zero represents a realized loss upon disposition.
Practitioner & Systems Framework
💻 ERP Architecture
Systems must distinguish between 'unrealized depreciation' (still held) and 'realized loss' (disposed/written off). The NAV impact must be allocated to LP capital accounts, reducing each LP's ending capital balance proportionally.
⚠️ Audit Flags
Management's impairment triggers and the timeliness of write-downs are heavily scrutinized. Auditors look for evidence that GPs are not delaying write-downs on underperforming assets to inflate NAV and management fees. Portfolio company covenant compliance certificates and lender communications are key evidence.
📄 Required Documentation
Updated valuation model, portfolio company management accounts, lender/creditor correspondence, valuation committee minutes documenting the write-down rationale and approval.
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