NAV (Net Asset Value)

Net asset value (NAV) is the total fair value of a fund's assets minus its liabilities, representing the aggregate economic value attributable to limited partners at a given point in time. It is the primary measure of a fund's current worth and the basis for LP reporting, performance metrics, management fee calculations (in some structures), and secondary market pricing.

How it works

NAV is calculated by the fund administrator at regular intervals specified in the fund's documentation, typically quarterly for PE and private credit funds, though some structures calculate more frequently. The calculation begins with the fair value of each portfolio investment, applies any fund-level liabilities (fees payable, accrued expenses, unfunded commitment reserves, and in leveraged structures, any fund-level debt), and produces the net figure attributable to LP capital accounts.

The valuation of private fund assets is the most complex component of NAV calculation. Unlike public securities, private investments do not have observable market prices. GPs value portfolio companies and loans using methodologies including comparable company analysis, precedent transaction analysis, discounted cash flow analysis, and (for private credit) mark-to-market or amortised cost approaches. IPEV (International Private Equity and Venture Capital) Valuation Guidelines and, for credit funds, IFRS 9 fair value principles, are the standard frameworks. Valuations are prepared by the GP and reviewed (and in some fund structures independently verified) by the fund administrator before inclusion in the NAV statement.

NAV per LP interest is the LP's proportionate share of total fund NAV, calculated using the LP's percentage of committed or contributed capital depending on the fund structure. LPs use NAV per interest as the basis for LP interest pricing in secondary market transactions. The discount or premium to NAV at which LP interests trade in the secondary market reflects market sentiment, liquidity preference, and the buyer's own return requirements.

For private credit funds, NAV is calculated more frequently and with greater precision than in PE, because the asset base (loans) is inherently valued on a yield basis and the fund may have regular income distributions. Amortised cost accounting is common for performing loans in buy-and-hold credit funds, with fair value adjustments for material credit deterioration.

Worked example

Northfield Capital Partners II holds a portfolio of five PE investments with the following valuations as at 31 December 2025: Company A GBP 85M, Company B GBP 42M, Company C GBP 18M (impaired), Company D GBP 110M, Company E GBP 67M. Total investment fair value: GBP 322M.

Fund-level liabilities: management fee payable GBP 2.1M; accrued fund expenses GBP 0.4M; subscription line outstanding GBP 35M. Total liabilities: GBP 37.5M.

NAV: GBP 322M - GBP 37.5M = GBP 284.5M.

Total LP commitments: GBP 300M; total contributed capital: GBP 240M.

LP Beta holds a GBP 20M commitment and has contributed GBP 16M (pro-rata to total contributions of GBP 240M out of GBP 300M x GBP 20M = GBP 16M). LP Beta's share of NAV: (GBP 16M / GBP 240M) x GBP 284.5M = GBP 18.97M. NAV per unit of contribution: GBP 284.5M / GBP 240M = 1.185x contributed capital. The fund administrator produces a quarterly NAV statement for each LP and the aggregate fund position, reconciled to the ABOR.

Frequently asked questions

How is NAV different from the cost of investments? Cost (or book value) records what the fund paid for each investment; NAV reflects the current fair value. A fund that invested GBP 50M in a company now worth GBP 80M would show GBP 50M cost and GBP 80M fair value. The difference (GBP 30M) is unrealised gain and is included in NAV but not in contributed capital or cost-basis metrics. Funds also report TVPI (total value to paid-in) which includes both NAV and cumulative distributions, capturing both realised and unrealised value.

Can NAV go below LP contributed capital? Yes. If the fund's investments lose value, NAV can fall below the total capital contributed by LPs. This situation (NAV below contributed capital) means LPs are in an unrealised loss position on an aggregate basis. The fund administrator reports this position transparently; no automatic recapitalisation or loss crystallisation occurs. Losses are realised only when assets are sold or written off.

How is NAV used to calculate management fees? Some fund structures charge management fees as a percentage of NAV (common in infrastructure, real estate, and some credit funds) rather than as a percentage of committed or invested capital (more common in PE). NAV-based fees require accurate quarterly valuations because the fee amount changes with portfolio performance. Administrators in NAV-based fee structures must ensure the valuation and fee calculation processes are tightly integrated.

What is the relationship between NAV and secondary market pricing? Secondary buyers price LP interests as a percentage of NAV, typically at a discount. The discount reflects illiquidity, information asymmetry, the secondary buyer's target return, and market sentiment. A well-performing fund with strong recent distributions might trade at 95-100% of NAV; a distressed or opaque fund might trade at 60-70%. Secondary market discounts to NAV widened significantly during periods of market stress (2008-2009, early 2020) and tightened during strong performance periods (2021).

Related terms

Capital account, AUM, AUA, NAV facility, Distribution waterfall, Carried interest, Golden copy / ABOR, Vintage year

Related pages

NAV calculation and LP reporting in private fund administration, Swelv for fund administrators