Net asset value: Difference between revisions

Revision as of 07:34, 6 July 2024

Latest revision as of 18:50, 31 August 2025

(3 intermediate revisions by 3 users not shown)

Line 1:

{{Short description|Net value of an entity calculated as total value of its assets minus value of liabilities}}

{{refimprove|date=April 2008}}

'''Net asset value''' ('''NAV''') is the value of an entity's [[asset]]s minus the value of its [[Liability (financial accounting)|liabilities]], often in relation to [[open-end fund|open-end]], [[mutual fund|mutual]] funds, [[Hedge fund|hedge funds]], and [[Venture capital|venture capital funds]].<ref>{{Cite web |title=Net Asset Value |url=https://corporatefinanceinstitute.com/resources/valuation/net-asset-value/ |access-date=2022-12-21 |website=Corporate Finance Institute |language=en-US}}</ref><ref>{{Cite web |title=Net Asset Value {{!}} Investor.gov |url=https://www.investor.gov/introduction-investing/investing-basics/glossary/net-asset-value#:~:text=%22Net%20asset%20value,%22%20or,NAV%20will%20be%20$90%20million |access-date=2022-12-21 |website=www.investor.gov}}</ref> Shares of such funds registered with the [[U.S. Securities and Exchange Commission]] are usually bought and redeemed at their net asset value.<ref>{{Cite web |title=Net Asset Value {{!}} Investor.gov |url=https://www.investor.gov/introduction-investing/investing-basics/glossary/net-asset-value |access-date=2023-01-03 |website=www.investor.gov}}</ref> It is also a key figure with regard to [[hedge fund]]s and [[venture capital fund]]s when calculating the value of the underlying investments in these funds by investors. This may also be the same as the [[book value]] or the [[shareholders' equity|equity]] value of a business. Net asset value may represent the value of the total equity, or it may be divided by the number of [[shares outstanding]] held by investors, thereby representing the net asset value ''per share''.<ref>{{cite web |url=http://www.raymondjames.com/gloss.htm#n |author=Raymond James |title=Glossary of Investment Terms |date= August 9, 2011 |publisher=raymondjames.com}}</ref> NAV gained momentum in REIT 20 years after enactment of Public Law 86-779,

signed by President Dwight D. Eisenhower in 1960. This was as a result of its extensive use by Green Street Advisors in 1985.<ref>{{cite web |url=https://reitlog.com/news/reit-valuation-methods-unearthing-hidden-gems/ |title=REIT Valuation Methods: Unearthing Hidden Gems |website=Reitlog.com |date=15 November 2023 |access-date=19 June 2025}}</ref>

==Overview==

Line 19 ⟶ 20:

==Mismarking==

[[Mismarking]] in securities valuation takes place when the value that is assigned to securities does not reflect what the securities are actually worth, due to intentional [[fraudulent]] mispricing.<ref>[https://www.bis.org/bcbs/qisoprisknote.pdf "1QIS 2 - Operational Risk Loss Data – 4 May 2001,"] [[Bank of International Settlements]].</ref><ref name="auto3">{{Cite web|url=https://markets.businessinsider.com/news/stocks/morgan-stanley-fires-places-on-leave-four-traders-mismarking-securities-2019-11-1028727080|title=Morgan Stanley reportedly fires or places on leave at least 4 traders while investigating millions in hidden losses &#124; Markets Insider|author=Daniel Strauss|date=November 29, 2019|website=Business Insider}}</ref><ref name="auto4">{{Cite web|url=https://www.aoinvestigationsinsight.com/amid-falling-markets-valuation-challenges-and-mis-marking-fraud-risks-rise/ |author=Eugene Ingoglia |author2=Todd Fishman |author3=Mark Daniels|title=Amid falling markets, valuation challenges and mis-marking fraud risks rise|work=Investigations Insight|date=April 22, 2020|access-date=November 15, 2020|archive-date=September 28, 2020|archive-url=https://web.archive.org/web/20200928000720/http://www.aoinvestigationsinsight.com/amid-falling-markets-valuation-challenges-and-mis-marking-fraud-risks-rise/|url-status=dead}}</ref> Mismarking misleads investors and fund executives about how much the securities in a securities portfolio managed by a trader are worth (the securities' net asset value) and thus misrepresents performance.<ref name="auto6">{{Cite web|url=https://www.financemagnates.com/executives/moves/morgan-stanley-names-two-new-heads-for-fx-options-desk/|title=Morgan Stanley Names Two New Heads for FX Options Desk; Silverman and Jeurissen are replacing Thiago Melzer, who was fired in November amid allegations of mismarking securities.|date=January 31, 2020|author=Aziz Abdel-Qader|website=Finance Magnates }}</ref><ref name="auto7">{{Cite journal|author=George J. Benston|title=Fair-value accounting: A cautionary tale from Enron|journal=Journal of Accounting and Public Policy |volume=25 |issue=4 |pages=465–484 |date=July–August 2006 |doi=10.1016/j.jaccpubpol.2006.05.003}}</ref><ref>Kent Oz (2009). [https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=1344&context=jcfl "Independent Fund Administrators As A Solution for Hedge Fund Fraud,"] ''Fordham Journal of Corporate & Financial Law''.</ref> When a [[rogue trader]] engages in mismarking, it allows them to obtain a higher [[Bonus payment|bonus]] from the financial firm for which they work, where their bonus is calculated by the performance of the securities portfolio that they are managing.<ref name="auto6"/><ref name="auto7"/><ref>{{Cite SSRN |last1=Atanasov|first1=Vladimir A.|last2=Merrick|first2=Jr|last3=Schuster|first3=Philipp|date=2019-07-11|title=Mismarking Fraud in Mutual Funds|language=en |ssrn=3395430}}</ref>

==Valuation of assets in open-ended funds and hedge funds==

Line 28 ⟶ 29:

In 2003, investors in Lancer Group sued hedge fund administrator [[Citco]] for allegedly knowingly disseminating "misleading" Net Asset Value (NAV) statements.<ref name="auto8">{{Cite book|url=https://books.google.com/books?id=y7OYBAAAQBAJ&q=citco+administrator&pg=PA106|title=Hedge Fund Governance: Evaluating Oversight, Independence, and Conflicts|first=Jason|last=Scharfman|date= 2014|publisher=Academic Press|isbn=978-0-12-802512-3|via=Google Books}}</ref><ref>{{Cite web|url=https://fortune.com/2011/05/09/pulling-the-veil-on-the-veil-pullers/|title=Pulling the veil on the veil pullers|work=Fortune|author= Katie Benner|date=May 9, 2011}}</ref> Citco ultimately informed investors that it was resigning as administrator to Lancer's funds, but did not provide an explanation. While Citco pointed to the fact that it had sought statements from Lancer's board of directors as to the propriety of the valuations, Southern District of NY Judge [[Shira Scheindlin]] wrote: "Although these actions demonstrate Citco Group's questioning of the numbers, they could also be interpreted as Citco Group's efforts to shield its own involvement in the process".<ref name="auto8"/> Ultimately, Citco settled with investors.<ref name="auto8"/>

The case of ''Anwar v. Fairfield Greenwich'' (SDNY) is the major case relating to fund administrator liability for failure to handle its NAV-related obligations properly.<ref name=autogenerated4>[{{Cite web |url=https://www.nixonpeabody.com/en/ideas/articles/2016/05/10/madoff-anwar-case-with-235-million-in-settlement-monies-finally-comes-to-a-close |title="Madoff Anwar case, with $235 million in settlement monies, finally comes to a close"] |access-date=2019-02-08 |archive-date=2019-02-07 |archive-url=https://web.archive.org/web/20190207015945/https://www.nixonpeabody.com/en/ideas/articles/2016/05/10/madoff-anwar-case-with-235-million-in-settlement-monies-finally-comes-to-a-close |url-status=dead }}</ref><ref name=autogenerated1>[https://www.law360.com/articles/691802/the-citco-settlement-and-what-lies-ahead-for-pwc "The Citco Settlement And What Lies Ahead For PwC,"<!-- Bot generated title -->] Law360.</ref> The defendants settled in 2016 by paying the ''Anwar'' plaintiffs $235 million.<ref name=autogenerated4 /><ref name=autogenerated1 /> The court held in the case, prior to the settlement, that "it is reasonable to infer from Plaintiffs' allegations that the Administrators were aware that Plaintiffs would—and did—rely on their statements of the Funds' NAVs that were sent to the investors.... Accordingly, the Court finds that Plaintiffs allege a relationship between the investors and the Administrators that gives rise to a [[duty of care]] ...."<ref name=autogenerated3>[{{Cite web |url=https://h2o.law.harvard.edu/cases/5052 |title=''Anwar v. Fairfield Greenwich'' (SDNY)<!-- Bot generated title -->] |access-date=2019-02-08 |archive-date=2019-08-13 |archive-url=https://web.archive.org/web/20190813131303/https://h2o.law.harvard.edu/cases/5052 |url-status=dead }}</ref>

==Businesses==

Line 38 ⟶ 39:

* Certain assets, such as [[Goodwill (accounting)|goodwill]] (which broadly represents a company's ability to make future profits), are not necessarily included on a [[balance sheet]] and so will not appear in an NAV calculation.

A company's market value will not always be greater than its NAV. For example, analysts and management estimated that [[Liberty Media Corporation]] was trading for 30-5030–50% below its net asset value (or "core asset value") in June 2007.{{Citation needed|date=June 2007}} Where a company's market value is lower than its NAV, it may be considered more profitable to wind the company down and sell off its assets individually rather than continue to run it as a [[going concern]].

In contrast to fund valuation, the assets of a company will generally be valued for the purpose of a NAV calculation using the [[book value]], the [[historical cost]], or the [[amortization (accounting)|amortised]] cost of the company's assets, or an appropriate combination of the three.