Fair Value Hierarchy (Level 1, 2, 3) Explained for Funds

Q: What is a Level 3 asset?

An asset valued using significant unobservable inputs, such as a private company valued with a discounted cash flow or adjusted comparables.

Q: Can an asset move between levels?

Yes. For example, a private holding becomes Level 1 when the company lists, or a listed holding drops to Level 2 or 3 if trading becomes inactive. Transfers are disclosed.

Q: Which standard sets out the hierarchy?

IFRS 13 Fair Value Measurement, which in Singapore is SFRS(I) 13.

By aama.io Fund Operations Team · Last reviewed 2 October 2026

The fair value hierarchy, set out in IFRS 13, ranks the inputs used to value an asset by reliability. Level 1 uses quoted prices in active markets, Level 2 uses other observable inputs, and Level 3 uses unobservable inputs and management judgement. Funds disclose how much of their portfolio sits in each level.

Sourced information — it can change

This page is compiled from public sources (listed at the bottom) and last reviewed on 2 October 2026. Regulations, thresholds, fees and market practice change, so it may not reflect the latest position. Check with your auditor, the Accounting Standards Council (ASC) Singapore and the IFRS Foundation before acting.

Key facts

Standard	IFRS 13 Fair Value Measurement (SFRS(I) 13 in Singapore)
Level 1	Quoted prices in active markets for identical assets
Level 2	Observable inputs other than Level 1, such as prices of similar assets or yield curves
Level 3	Unobservable inputs, such as DCF assumptions or adjusted private-round prices
Classified by	The lowest-level input that is significant to the whole measurement
Disclosure	Level 3 carries the heaviest disclosure, including a roll-forward and valuation inputs

How it works

Identify the valuation inputs. For each holding, list the inputs used: quoted prices, comparable transactions, yield curves, discount rates, growth assumptions.
Find the lowest significant input. The whole measurement is classified by the lowest level of input that is significant to it. One significant unobservable input makes it Level 3.
Classify and tally. Each holding is assigned to Level 1, 2 or 3 and the totals per level are reported.
Disclose. Funds disclose the classification and, for Level 3, the valuation techniques, key unobservable inputs and movements during the period.

Worked example: A $100M portfolio

A fund holds a listed share, a corporate bond priced from comparable yields, and unlisted venture holdings valued with a discounted cash flow.

Level 1: listed shares (quoted price)	$30M · 30%
Level 2: bonds (comparable-yield pricing)	$20M · 20%
Level 3: unlisted holdings (DCF, unobservable inputs)	$50M · 50%
Total investments at fair value	$100M

Half the NAV rests on Level 3 judgement. That is typical for a private markets fund and is why auditors and LPs focus on Level 3 valuation inputs.

Common mistakes

Classifying by the primary input instead of the lowest significant input.
Treating a stale private-round price as Level 2 without evidence the inputs are observable.
Leaving Level 3 disclosures thin. This is where reviewers look first.
Not re-assessing the level when markets become less active.

The Singapore and APAC angle

Singapore reporting entities apply SFRS(I) 13, which is identical to IFRS 13. For VCC sub-funds, the hierarchy table is prepared per sub-fund, since each prepares its own accounts for its investors.

Frequently asked questions

What is a Level 3 asset?

Can an asset move between levels?

Which standard sets out the hierarchy?

Free tools

Bond Accounting JE Generator (IFRS 9 Amortised Cost)FX Revaluation JE Generator (IAS 21 Closing Rate)

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Go deeper

IFRS 9 / SFRS(I) 9 for Funds

Related terms

Net Asset Value (NAV)

Net asset value (NAV) is the total value of a fund's assets minus its liabilities at a point in time. Dividing NAV by the number of units or shares gives NAV per unit, the price at which investors subscribe or redeem in open-ended funds and the basis for reported value in closed-end funds.

IFRS 9 / SFRS(I) 9

IFRS 9, called SFRS(I) 9 in Singapore, is the accounting standard for financial instruments. It classifies each instrument by the entity's business model and whether cash flows are solely payments of principal and interest (SPPI), then measures it at amortised cost, fair value through OCI, or fair value through profit or loss, with expected credit loss for impairment.

Sources

IFRS 13 Fair Value Measurement (IFRS Foundation)

General information, not tax, legal, accounting or investment advice. This content is sourced from the references above and from public regulatory material, and it can become outdated. Always confirm the current position with your auditor, the Accounting Standards Council (ASC) Singapore and the IFRS Foundation, and take professional advice for your specific situation, before relying on it.