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→Inaccuracies and risks: add a bit on fraudulent mismarking w/ new ref |
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==Generally==
Net asset value and other accounting and recordkeeping activities are the result of the process of [[fund accounting]] (also known as securities accounting, investment accounting, and portfolio accounting). Fund accounting systems are sophisticated computerized systems used to account for investor [[Financial capital|capital]] flows in and out of a fund, purchases and sales of investments, and related investment income, gains, losses and operating expenses of the fund. The fund's investments and other assets are valued regularly; daily, weekly, or monthly, depending on the fund and associated regulatory or sponsor requirements. There is no universal method or basis of [[valuation (finance)|valuing assets and liabilities]] for the purposes of calculating the net asset value used throughout the world, and the criteria used for the valuation will depend upon the circumstances, the purposes of the valuation, and any regulatory and/or accounting principles that may apply. For example, for U.S.-registered open-ended funds, investments are commonly valued each day the [[New York Stock Exchange]] is open, using closing prices (meant to represent fair value),<ref>AICPA Audit and Accounting Guide - Investment Companies May 1, 2007.</ref> typically 4:00 p.m. [[Eastern Time]]. For U.S.-registered money market funds, investments are often carried or valued at "amortized cost" as opposed to market value for expedience and other purposes, provided various requirements are continually met.<ref>{{cite web |title=A Guide To Understanding Mutual Funds |publisher= Investment Company Institute |url=http://www.ici.org/pdf/bro_understanding_mfs_p.pdf
At the completion of the valuation process and once all other appropriate accounting entries are posted, the accounting books are "closed", enabling a variety of information to be calculated and produced including the net asset value per share.
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[[Mutual fund]] set their net asset value based on daily pricing using the end of the day price, which can introduce inaccuracies.<ref name=":0">{{Cite web|url=https://insight.factset.com/the-biggest-myths-in-net-asset-value|title=The Biggest Myths in Net Asset Value|last=Inc|first=FactSet Research Systems|website=insight.factset.com|language=en-us|access-date=2020-02-29}}</ref> [[Exchange-traded fund|ETFs]] do not have this precise risk as the holdings are typically reported transparently,<ref name=":0" /> although large [[Bid–ask spread|bid-ask spreads]] and premiums or discounts to NAV can occur.<ref>{{Cite web|url=https://www.marketwatch.com/story/this-is-how-some-etfs-are-run-like-a-shell-game-scam-2018-06-27|title=This is how some ETFs are run like a shell-game scam|last=Martchev|first=Ivan|website=MarketWatch|language=en-US|access-date=2020-02-29}}</ref>
Mismarking the value of underlying securities can be a fraudulent activity which inflates returns and sets future investors up for losses.<ref>{{Cite journal|last=Atanasov|first=Vladimir A.|last2=Merrick|first2=Jr|last3=Schuster|first3=Philipp|date=2019-07-11|title=Mismarking Fraud in Mutual Funds
==Valuation of assets in open-ended funds and hedge funds==
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Calculation of the net asset value for a hedge fund, including the calculation of the fund's income and expense accruals and the pricing of securities at current market value, is a core [[fund administrator]] task, because it is the price at which investors buy and sell shares in the fund.<ref name=autogenerated2>[http://files.irishfunds.ie/1433105561-2009-9-guide-to-sound-practices-for-hedge-fund-administrators.pdf ''Guide to Sound Practices for Hedge Fund Administrators'']</ref> The accurate and timely calculation of NAV by the administrator is vital.<ref name=autogenerated2 /><ref>[https://www.iomfsa.im/media/2320/soundpracticeguidelines.pdf "Sound Practice Guidelines for Administrators of Alternative Funds including Experienced Investor Funds in the Isle of Man"]</ref>
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/
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>[https://www.nixonpeabody.com/en/ideas/articles/2016/05/10/madoff-anwar-case-with-235-million-in-settlement-monies-finally-comes-to-a-close "Madoff Anwar case, with $235 million in settlement monies, finally comes to a close"]</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>[https://h2o.law.harvard.edu/cases/5052 ''Anwar v. Fairfield Greenwich'' (SDNY)<!-- Bot generated title -->]</ref>
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