NAV Is the Single Number Everything Else Depends On
An AIF's NAV determines the price at which new investors' contributions convert into units, how existing investors' capital accounts are valued, and — where the PPM ties fees to NAV — how much the manager is paid. Getting NAV computation right is foundational, not a back-office afterthought.
The Basic NAV Formula
At its simplest:
NAV per unit = (Total Fund Assets − Total Fund Liabilities) ÷ Total Units Outstanding
The complexity in AIFs comes almost entirely from the "Total Fund Assets" side of that equation — specifically, valuing unlisted holdings that have no daily market price.
What Goes Into the Computation
- Listed holdings — valued at quoted market price as of the valuation date
- Unlisted holdings — valued per independent valuation, using the methodology specified in the PPM (see our dedicated article on unlisted securities valuation)
- Cash and cash equivalents — held at book value
- Accrued income and expenses — including accrued but unpaid management fees, and income accrued but not yet received
- Liabilities — including any fund-level borrowings (for Category III, where leverage is permitted) and payables
Why NAV Timing Matters for Subsequent Closings
When a new investor is admitted at a subsequent closing, they're allotted units at the NAV prevailing on that date — meaning any increase in portfolio value since the fund's first closing is effectively "priced in" to the new investor's entry, while existing investors are compensated (via catch-up contribution and imputed cost mechanisms) for having funded the same investments earlier at their own risk.
How Frequently Should NAV Be Computed?
This is specified in the PPM — commonly quarterly at minimum for closed-ended Category I/II AIFs, potentially more frequently for funds with more liquid or actively traded portfolios, and typically more frequently still for Category III AIFs given their trading strategies.
Common NAV Computation Errors
- Stale valuations carried forward without refresh at the required frequency
- Accrued management fees or expenses omitted from the liabilities side
- Inconsistent treatment of income accrued on debt instruments (CCDs, structured credit) held by the fund
We Build and Validate NAV Models Directly Off the PPM
NAV computation errors compound over a fund's life and directly affect what every investor believes their holding is worth. We build and audit NAV models with explicit, formula-level treatment of valuation inputs, accruals, and unit allotment mechanics.
This article is for general informational purposes. Please refer to your fund's PPM for the specific NAV computation methodology and frequency applicable to your fund.