Net Asset Value (NAV) is one of the most referenced metrics in private equity and venture capital fund reporting, but it’s also one of the most misunderstood. Unlike mutual funds or ETFs, where NAV is calculated daily based on market prices, private capital funds operate in a world of illiquid assets, bespoke valuations, and quarterly reporting cycles. So how is NAV actually determined?
The Core Formula
At its simplest, NAV is calculated as:
NAV = Total Assets – Total Liabilities
But in private equity and venture capital, each component requires careful interpretation:
Total Assets include:
Fair value of portfolio investments (typically marked quarterly)
Cash and cash equivalents
Accrued income (e.g., interest, dividends)
Receivables (e.g., capital calls issued but not yet received)
Total Liabilities include:
Fund-level debt (e.g., subscription lines)
Accrued expenses (e.g., management fees, audit costs)
Payables (e.g., distributions declared but not yet paid)
Valuation of Portfolio Companies
This is where NAV gets nuanced. Since private investments aren’t traded on public markets, their fair value must be estimated using one or more of the following:
Comparable company multiples (e.g., EV/EBITDA)
Discounted cash flow (DCF) models
Recent transaction prices (e.g., follow-on rounds, exits)
Third-party valuation reports
Valuation committees, fund managers, and auditors all play a role in validating these marks. The goal is to reflect a “fair value” that aligns with accounting standards like ASC 820.
Timing and Frequency
NAV is typically calculated:
Quarterly for LP reporting
Monthly for internal performance tracking or credit facility compliance
Ad hoc during fundraising, exits, or material events
NAV is also the basis for calculating management fees (usually a percentage of committed or invested capital) and carried interest (based on realized gains and NAV appreciation).
Common Adjustments
NAV may be adjusted for:
Side pockets or segregated assets
Unfunded commitments
Foreign exchange impacts
Deferred taxes in certain jurisdictions
These adjustments ensure NAV reflects the true economic position of the fund.
For LPs, NAV is a proxy for fund performance and asset quality. For GPs, it’s a key input into IRR calculations, fee mechanics, and investor communications. For auditors and regulators, it’s a benchmark for transparency and consistency.