Net asset value

The net asset value formula is total assets minus total liabilities. The net asset value per share formula divides that result by the number of shares or units outstanding: NAV per unit = (total assets − total liabilities) ÷ units outstanding. In Germany, section 168 of the Capital Investment Code (KAGB) defines the NAV per unit of an open-ended public fund in exactly this way.

Assets include the securities at their valuation price, cash at banks, receivables such as dividends declared but not yet paid, and accrued interest. Liabilities include the fees owed to the manager, the depositary and the administrator, redemptions not yet paid out, taxes and loans. A fund with several share classes calculates a separate NAV for each class, because the classes differ in fees, currency hedging or the distribution of income.

A NAV calculation in fund accounting follows the same sequence on every valuation day, whether the fund holds equities, bonds or crypto-assets:

1. Book all trades, subscriptions, redemptions and corporate actions up to the cut-off time.
2. Price every position from the sources named in the valuation policy.
3. Accrue management fees, performance fees and operating expenses since the last valuation.
4. Reconcile positions and cash with the records of the depositary, the custodians and the brokers.
5. Divide the net assets of each share class by its units outstanding.
6. Compare the result with the previous NAV, explain moves beyond a set tolerance and release the price.

For funds that hold crypto-assets, crypto fund administration adds the reconciliation of wallet balances and the booking of staking rewards to these steps.

Every regulated fund in the EU has a written valuation policy. Under the AIFMD, the manager sets valuation procedures for each fund, and either an external valuer or the manager itself carries out the valuation, with the valuation function kept separate from portfolio management. The Delegated Regulation (EU) No 231/2013 requires the policy to name a methodology for each type of asset the fund may hold, and the manager may not buy a new type of asset before such a methodology exists.

For a listed share the price is the closing auction of its home exchange. A crypto-asset trades on many venues at once and never closes, so the policy names a reference venue, an average across named venues or a benchmark index, together with the exact time of the snapshot. Holdings without a market price, such as private equity stakes, are valued with models, which is why NAV calculation in private equity usually runs quarterly. Digital asset valuation applies these methods to tokens, staked positions and thinly traded assets.

The cut-off time is the deadline for orders that are dealt at the next NAV, and the valuation point is the moment at which the portfolio is priced. An order placed before the cut-off is dealt at a price nobody knows when the order goes in, which is called forward pricing. US mutual funds must work this way under SEC Rule 22c-1, and most European funds set the same rule in their prospectus to stop late trading at a stale price.

In a market that trades through the night and on weekends, the valuation point is a snapshot. The administrator freezes positions, cash and prices at one moment, and trades a second later belong to the next calculation. The valuation policy decides in advance which price counts when venues disagree at that moment, and this is what 24/7 trading changes for a fund in practice.

US mutual funds calculate a NAV every business day after the exchanges close. A UCITS publishes its issue and redemption prices whenever it deals in units and at least twice a month, and most UCITS deal daily. An alternative investment fund is valued at least once a year, and an open-ended one at a frequency that fits its assets and its dealing schedule, so hedge funds usually strike a monthly NAV and private equity funds a quarterly one.

Net asset value is the value of the holdings per unit, and market value is the price at which a unit changes hands between investors. Investors in an open-ended fund deal with the fund itself at NAV, so the two figures match, apart from any entry or exit charge. An ETF or a closed-end fund trades on an exchange, and its market price can sit above NAV, at a premium, or below it, at a discount. Listed companies that hold bitcoin on the balance sheet show the same gap between share price and holdings, measured as mNAV.

Hedge funds hold derivatives, short positions and borrowed money, which take longer to value and reconcile than a portfolio of listed shares. The administrator also calculates the performance fee for each investor or each series of units, usually with a high-water mark, so that no investor pays twice for the same gain. A crypto fund adds wallet balances, staking rewards and positions on several trading venues, and the depositary verifies that the fund owns those assets before the NAV is released.

The administrator calculates the NAV, the manager approves it and the depositary checks that the calculation follows the law and the fund rules. The UCITS Directive and the AIFMD both give the depositary this oversight duty. The auditor tests the valuation once a year, and an error above the tolerance set by the supervisor or the fund documents leads to a correction and, where investors lost money, to compensation.