Net Asset Value
Net asset value is a fund's assets less its liabilities — for a mutual fund or ETF, computed daily from market prices and divided by the units in issue to give the dealing price; for a private equity or venture fund, computed quarterly from the manager's valuation of unlisted companies. The public NAV is a fact; the private NAV is an estimate, and the secondary market's discount to it is the market's opinion of the estimate.
- Also known as
- NAV, Net assets, NAV per share
- Used at
- mutual fund dealing (subscriptions and redemptions at NAV), ETF arbitrage (price against NAV), private fund reporting (quarterly NAV per LP interest), NAV-based lending, and the pricing of secondary fund interests as a percentage of NAV
- Binding
- mutual funds must strike NAV by rule and deal at it; private funds value under standards (IPEV in Europe, ASC 820 in the US) with an auditor's review, but the number is the manager's
- Typical private valuation methods
- comparable multiples applied to the company's earnings or revenue, the last round's price (for venture), a DCF, or cost for recent investments; marks lag the public market by a quarter or two in both directions
- Typical secondary pricing
- buyers of fund interests paid 80–95% of NAV for buy-out funds and 60–80% for venture funds in 2023–2024 — the discount is what the market thinks of the marks
- Parties
- the fund's administrator, which computes it; the manager, which values the private holdings; the auditor; the investors, whose returns are measured on it; and the lenders who lend against it
How net asset value works in practice
A mutual fund holds 200 listed stocks; at the close, the administrator prices each, adds the cash, subtracts the accrued fees and other liabilities, and divides by the units outstanding: NAV per unit €14.37. An investor who sent money today buys at that price; one who redeemed receives it. An ETF's NAV is computed the same way, and its market price trades around it because the authorised participants arbitrage the gap. Nothing in this is a judgement.
A venture fund holds twenty private companies. Each quarter the manager values them: this one at the price of its last round three months ago; that one at a multiple of revenue from listed comparables, less a discount; a third written down to zero; a fourth, held at cost, because nothing has happened. The sum less liabilities is the fund's NAV, reported to LPs as the interim measure of how the fund is doing, and the basis of the fund's interim IRR. It is honest and it is soft: in 2022 public fintech stocks fell 60–80% and venture NAVs fell 10–20% over the following year, because the marks waited for the next rounds that were not being raised. Secondary buyers priced the interests at 60–70% of NAV, which was the market's estimate of where the marks would end up.
NAV-based lending — funds borrowing against their portfolio's NAV to fund distributions or follow-ons when exits are slow — grew fast in 2023–2024 and made the softness of the mark a credit question.
Example
A venture fund's NAV at the end of 2021: €480m across eighteen companies, twelve marked at their 2021 round prices. Over 2022 the public fintech index falls 65%; the fund marks down eight companies by 15–40% and holds the rest at the last round, since no new round has priced them: NAV €395m, −18%. An LP wishing to sell its €20m interest receives bids at 62% of NAV — €12.4m — from secondary buyers who assume the unmarked companies are worth half their last round. In 2024 three of those companies raise down rounds at 40–55% below 2021 and the fund's NAV falls a further 12%; the secondary buyer's 62% looks, in hindsight, like a fair price for an honest NAV a year early.
Common mistakes
- Reading a private fund's NAV as a price; it is an estimate that the next round or the next sale corrects. - Comparing funds' interim IRRs computed on marks of different conservatism. - Marks held at the last round's price through a market that has halved. - LPs selling in the secondary market at a discount that reflected the marks' lag rather than the companies' value — or holding when the discount was right. - Lending against NAV without asking how it was struck.