FASB Wants Fund Values To Stop Ignoring Locked-Up Stock

Under current fair value guidance, a company generally does not factor a contractual sale restriction into the fair value of an equity security.

That means restricted stock and unrestricted stock from the same investee can land at roughly the same market-based value.

On paper, that is clean. In real life, it can feel wrong. A share you cannot sell today is not the same as a share you can dump tomorrow morning.

Investment Companies Say The Math Can Get Weird

The proposed change is aimed at investment companies. These are the funds where fair value is not just an accounting line. It can drive net asset value, performance reporting, management fees, and shareholder economics.

That is where the current rule gets uncomfortable. If a locked-up security is valued like it is fully liquid, the fund may show a NAV that feels higher than what market participants would actually pay.

That can create a bad split. Purchasing shareholders, redeeming shareholders, and remaining shareholders may all be affected differently by a value that does not reflect the restriction.

FASB Is Basically Asking For A Lockup Discount

The proposed update would require investment companies to consider contractual sale restrictions when measuring fair value for equity securities.

If the stock is locked up, the value should reflect that lockup.

Funds would also have to disclose the amount of the discount tied to contractual sale restrictions. That disclosure matters because it shows how much of the value change comes from the restriction itself.

This Is A Fund Reporting Issue, Not Just A Footnote

The proposed rule would make investment-company reporting line up more closely with how market participants may price restricted shares.

That sounds technical. The practical impact is not. NAV, fees, performance, and investor transactions can all depend on the number.

For firms working with investment companies, this is the part to watch. The accounting answer may change the economics clients care about most.

The Comment Window Is Short

Comments are due July 17, 2026. That gives investment companies, auditors, valuation teams, and fund administrators a short window to decide whether the proposal fixes the problem or creates a new one.

If finalized, the amendments would apply prospectively to equity securities, with adoption adjustments recognized in earnings. Early adoption would be allowed.

The smart move is not to wait for final rules. Funds with restricted equity positions should start identifying where the lockups are, how discounts might be estimated, and which investor-facing numbers could move.