The Yield Illusion: Navigating Fair Value in Structured Investments

Structured investments provide companies with flexible financing solutions that minimize equity dilution and have become increasingly prevalent in venture lending, growth-stage financings, and special situations. Their growing popularity reflects broader market dynamics, including founders’ desire to retain control, investors’ preference for downside protection and yield, more predictable capital deployment pacing, and limited partner appeal in structures with clearer exit timing.

This paper explores how fair value measurements for structured investments can incorporate structurally informed yield reassessment that reflects both credit and non-credit components while remaining consistent with ASC 820’s principles of unit of account, market participant assumptions, and exit price. We examine calibration techniques and data-driven valuation practices that can help to avoid distorted fair values and arrive at more accurate pricing over time.