Net Asset Value (NAV): How Private Funds Calculate It

Net asset value (NAV) is what a fund is worth on its books at a given date: the fair value of its investments plus cash and other assets, minus everything it owes. For a private fund, NAV = total assets − total liabilities, and that figure equals the sum of all partners' capital accounts. NAV is the starting point for every unrealized performance metric, from RVPI to TVPI to interim IRR.

In public mutual funds NAV is struck daily from market prices. In private equity, venture and private credit funds it is usually calculated quarterly, and the largest component is a valuation estimate rather than a quoted price. That makes NAV both essential and something LPs read with care.

The NAV formula#

NAV = Investments at fair value + Cash + Other assets − Liabilities

Typical components:

Under U.S. GAAP, investment companies follow ASC 946 and measure investments at fair value under ASC 820. In a typical partnership, carried interest is presented as a reallocation of capital between LP and GP accounts rather than as a liability, so it does not change total NAV, but it does change how much of that NAV belongs to the LPs.

Worked example (hypothetical)#

Assume a $150M buyout fund at quarter end.

An LP holding 5% of the LP interests would see about $6.26M on its capital account statement, before any investor-specific adjustments such as fee discounts or side-letter terms.

The subscription facility matters here. If the fund has drawn on the line instead of calling capital, its investments are higher than paid-in capital would suggest, and the borrowing sits as a liability until LPs are called to repay it.

Where the fair value comes from#

The investment line is usually the largest and most judgment-heavy part of NAV. ASC 820 groups fair value measurements by observability of inputs:

• Level 1: quoted prices in active markets for identical assets (for example, listed shares the fund still holds after an IPO).
• Level 2: other observable inputs, such as quoted prices for similar instruments.
• Level 3: unobservable inputs, such as the manager's projections, comparable-company multiples adjusted for differences, or discounted cash flows.

Most private fund holdings are Level 3. Common techniques include market multiples of revenue or EBITDA, recent transaction prices (calibrated and rolled forward), discounted cash flow, and, for venture holdings with complex capital structures, option-pricing or scenario-based allocation across share classes. Many managers also refer to the IPEV Valuation Guidelines.

The fund's valuation policy documents which techniques apply when, who approves the marks and how often they are reviewed. Consistency matters as much as the technique: an LP can adjust mentally for a conservative or aggressive house style, but not for one that changes quarter to quarter. For process detail, see portfolio valuation.

Allocating NAV to partners#

Fund NAV is a single number; each partner's share is not a simple pro rata slice. Allocation typically involves:

1. Pro rata allocation of investment income, gains and losses based on each partner's interest in each investment (partners admitted at later closings may have different participation, adjusted through equalization).
2. Investor-specific fees and expenses, such as different management fee rates for different LP classes.
3. Hypothetical liquidation through the waterfall. The fund runs its distribution waterfall as if all assets were sold at NAV, to determine how much would go to the GP as carried interest. That amount is reallocated from LP capital accounts to the GP.

The result is the capital account balance that appears on each LP's PCAP statement.

How NAV is used#

• Performance metrics. NAV is the numerator of RVPI, part of the numerator of TVPI and the terminal value in interim IRR.
• Benchmarking. Benchmark data sets aggregate fund NAVs and cash flows by vintage. Consistent NAV reporting is what makes peer comparison meaningful.
• Fees. In some funds, management fees after the investment period are charged on invested capital or NAV, so NAV can directly drive fee income.
• Financing. NAV-based credit facilities lend against the portfolio's value, with loan-to-value covenants tied to reported NAV. See NAV finance.
• Secondary transactions. Secondary buyers price LP interests as a percentage of the most recent reported NAV.
• Regulatory reporting. Registered advisers report private fund asset values on Form ADV and, where applicable, Form PF.

The quarterly NAV process#

A dependable NAV comes from a defined sequence. Doing these steps out of order is the most common source of restatements.

1. Close cash and accruals. Reconcile bank accounts, record capital calls and distributions, accrue interest, fees and expenses in the general ledger.
2. Gather portfolio data. Collect financials and KPIs from portfolio companies or borrowers.
3. Determine fair values. Apply the valuation policy, document inputs, and take marks through the valuation committee.
4. Record unrealized gains and losses. Book the change in fair value for each position.
5. Allocate to partners. Allocate income, expenses and gains to capital accounts, including investor-specific items.
6. Run the waterfall. Compute accrued carried interest on a hypothetical liquidation basis and reallocate it.
7. Review and tie out. Confirm total partners' capital equals total assets minus liabilities, and that the investment schedule ties to the schedule of investments.
8. Report. Issue capital account statements and the quarterly report.

Common NAV errors#

• Booking valuations before cash and accruals are closed, so the balance sheet and the investment schedule disagree.
• Omitting accrued carry from LP NAV, which overstates the net value LPs see.
• Leaving subscription-line borrowings or accrued interest off the balance sheet.
• Rolling forward stale company data without disclosing the as-of date of the inputs.

NAV in credit and evergreen funds#

The same formula applies across strategies, but some fund types use NAV differently.

Private credit funds hold loans that are generally measured at fair value under ASC 820, with inputs including credit spreads, borrower performance and expected recoveries. Because loans accrue interest continuously, accrued interest receivable can be a material asset, and non-accrual status for troubled loans needs to be reflected promptly. Credit fund NAV often moves less than equity fund NAV, but a small number of impaired loans can still have a visible effect.

Evergreen and semi-liquid funds admit and redeem investors periodically at NAV. In those structures NAV is not just a reporting figure; it is the transaction price. That raises the stakes on timeliness and accuracy: a stale or overstated NAV transfers value between incoming, continuing and redeeming investors. Such funds typically strike NAV monthly or quarterly, apply documented valuation controls with more frequent review, and may use independent valuation agents for some or all positions. Subscription and redemption terms, including gates and notice periods, are set out in the offering documents. See evergreen funds for how these structures work.

How Privatis helps#

Privatis runs NAV from a double-entry fund general ledger with a structured period close. Portfolio valuations are recorded against each holding, partner allocations and waterfall-based carry accruals flow into capital accounts, and LPs see their own NAV on capital account statements in the LP portal. Every change to a valuation or journal entry is captured in the audit trail.