The Role of Technology in Computing a Daily Net Asset Value (NAV)

The challenges of computing a daily NAV

Before digging into how technology can help, it's important to understand the unique challenges of computing daily NAVs, particularly for firms accustomed to less frequent monthly or quarterly reporting:

1. Data aggregation and quality control:

Calculating a daily NAV requires data aggregated from multiple sources. Fund administrators, accounting platforms, and valuation service providers all supply different datasets in varying formats. Ensuring data is up to date, accurate, and consistent is critical to producing an accurate NAV. As daily calculations become the norm, the volume of data increases, making manual oversight increasingly difficult and prone to errors.

2. Valuation challenges

Daily NAV calculations require routine pricing and valuation updates from third-party service providers. If a firm decides to manage valuations in-house, comprehensive processes should be a well recorded and easily explainable to investors, especially in times of dynamic market conditions. Numbers can vary depending on methodologies, and the firm must actively monitor for stale or outdated pricing. Inaccurate or delayed valuations can have a significant impact on the computed NAV, leading to complications with investor confidence and regulatory compliance.

3. Increased operational demands

The shift to daily NAV calculations introduces a new level of operational dexterity, particularly for operations teams. These teams must also coordinate with adjacent in-house departments such accounting and external parties such as fund administrators. Processes must be executed with a high level of precision as errors or missteps can lead to delays, inaccuracies, or even regulatory breaches.

4. Tight deadlines and workflow complexity

Operations teams must adhere to the time-sensitive nature and service-level agreements of daily calculations. From receiving fund administrator files to generating and validating the NAV, every stage of the process must be meticulously managed for accuracy and timeliness. Discrepancies or exceptions will require swift intervention and resolution.

CASE STUDY: A Powerful NAV Oversight Solution for Private Markets

How technology can help

Given the complexity and operational challenges involved in computing a daily NAV, tools that support how you manage your data and your operations will play a crucial role in enabling your firm to scale operations, maintain accuracy, and meet investor expectations.

• Data ingestion and quality control

Proprietary pipelines help seamlessly integrate data from multiple systems — including accounting systems, valuation service providers, fund administrators — to harmonize, normalize, and ensure information is consistent and accurate. A robust library of preconfigured data quality rules will also help your team flag anomalies and discrepancies early in the process. Automation will play a key role in reducing the need for manual intervention and enhancing data accuracy, which is crucial for the integrity of the NAV calculation.

• Reconciliations and reporting

Streamline the reconciliation process by automating the comparison of fund-level data with your fund administrator’s books of record. Intuitive, workflow-centric interfaces will let your operations teams drill through multiple layers of data to identify discrepancies and determine their root cause. Built-in workflows track unresolved exceptions to ensure prompt resolution, while predefined statuses and reason codes provide transparency and accountability

• Enhanced workflow transparency

With more frequent valuations, quickly identifying and correcting discrepancies grows even more important. One of the key benefits of using modern tools to compute daily NAVs is the enhanced transparency into the calculation process. Full visibility across in-progress workflows, with detailed information on each stage of the process, including incoming file receipt, exception counts, and review and approval status, ensures stakeholders are aligned and can address issues as they arise. As an example, outlier tracking tools can help shore up workflows and your team’s oversight of stale pricing and NAV exceptions.

• Automated exception management

A well-designed data management and operational solution can identify and elevate problems as they occur, providing real-time alerts for anomalies and exceptions. Operations teams are more equipped to triage issues and monitor their resolution. Advanced platforms that provide an audit trail of changes and signoffs can also ensure each step in your process is documented and traceable.

• Auditability and compliance

Regulatory developments have put a spotlight on valuation practices, nudging firms toward more frequent NAV calculations. The UK’s Financial Conduct Authority (FCA) review in March 2024 and the SEC Rule 2a-5 have emphasized the importance of robust, transparent valuation practices in private funds. In practice, more frequent NAV strikes help demonstrate compliance by keeping pricing up to date and reducing the risk of stale or misvalued assets.

As regulatory standards continue to evolve, private market managers must ensure NAV calculations are fully auditable. A comprehensive audit trail of all actions, including data ingestion, validation, reconciliation, and approvals, provides assurance that your NAV process is both transparent and compliant with rigorous regulatory and investor demands.

Are you ready for a daily NAV?

The move to daily NAV calculations is becoming increasingly prevalent in the private markets. As firms strive to meet the demands of a more demanding market, the tools that firms use to compute daily NAVs becomes ever more critical. By leveraging advanced solutions, firms can overcome the challenges associated with daily NAV calculations, including data aggregation, valuation discrepancies, operational burdens, and tight timelines.

Ultimately, a data management and operational platform can enable firms to scale their operations, improve accuracy, and meet investor expectations in an increasingly complex financial landscape. While the shift to daily NAVs may seem daunting, firms that invest in the right technology infrastructure will be well-positioned to stay ahead of the curve, ensuring they keep pace with a fast-moving industry.