The NAV of a semi-liquid fund is not a market price but a model-based estimate of fair value — in the language of accounting, almost always “Level 3”: valued using assumptions that no market directly confirms. That estimate is governed by rules (IPEV, IFRS 13, AIFMD) but reacts to market movements with a lag and in muted form — which is why the smooth NAV curve shows less variation than is economically taking place. If you want to read NAV figures professionally, you read them together with the more honest signals: secondary market prices, realised sales against the last carrying value, and the behaviour of the redemption queues.
With an ETF the exchange supplies the price — with a semi-liquid fund there is no exchange: the NAV is the hypothetical sale price (“fair value”) a buyer would pay today. To keep this from being a matter of taste, the industry values to a common rulebook, the IPEV Guidelines (last fundamentally updated in December 2025). The method depends on the asset class — the two most important are multiples and DCF:
A company is priced using valuation multiples, usually EV/EBITDA: what are investors currently paying for comparable firms? The yardsticks are listed peer companies and recent sales of comparable firms (exits, takeovers). The peer multiple is adjusted for size, growth and margin, EBITDA for one-off effects. If valuations on the stock market rise or fall, that has to feed through the multiples into the fund NAV as well.
A wind farm or a fibre network has what a mid-sized company lacks: cash flows that are predictable for decades and often fixed by contract (concessions, power purchase agreements, regulated tariffs). That is why the discounted cash flow method dominates: future payments are estimated and discounted at a risk-adjusted rate — roughly 5–7% for regulated networks, 7–9% for contracted assets, 10–13% for projects with market or construction risk. The flip side: interest-rate sensitivity. As a rule of thumb, a discount rate one percentage point higher costs around 10% of the value.
A direct loan is valued through its interest rate relative to the market: at purchase the risk premium (spread) is recorded, and at each valuation date it is checked whether market rates, the spreads on comparable loans or the borrower’s credit quality have changed — technically another DCF. A loan that is being serviced properly therefore usually sits close to face value; only when payments run into trouble is it written down, through a higher discount rate and the value of the collateral.
This is where valuation is most heavily formalised: external, independent experts determine the market value, mostly using the income capitalisation approach, and internationally in line with the RICS “Red Book”. German open-ended property funds must have their properties revalued at least quarterly; from a property value of €50 million upwards, two independent valuers are mandatory, with a prescribed rotation of appraisers.
How well do these estimates match reality? Three honest yardsticks:
The accounting rules (IFRS 13, and its US counterpart ASC 820) sort every fair value measurement according to how much of it the market supplies and how much comes from a model. Level 1: an identical instrument is quoted on an active exchange — the price is the value. Level 2: no direct exchange quote, but observable market data from which the value can be derived almost mechanically. Level 3: material assumptions are not observable in the market — model plus professional judgement. Company stakes, direct loans, wind farms, office buildings: all Level 3. That is neither a blemish nor a seal of quality but a measurement instruction: two honest, competent valuers can arrive at different numbers for the same asset, both within a defensible range; annual reports must disclose the fair value hierarchy (IFRS 13, para. 93 et seq.). For you this means: a NAV is a point estimate drawn from a range — a deviation of a few per cent from the price later realised is not manipulation but normal measurement uncertainty.
The valuation process has one consequence you need to know before comparing NAV curves: smoothing. It arises without any ill intent from three mechanisms: frequency (a full valuation is usually done quarterly, with the value rolled forward in between), lag (by the time new company figures and market multiples reach the model, the quarter is over) and caution — valuers demonstrably anchor on the last established value. Property research has documented this as “appraisal smoothing” since Geltner (1991), and Getmansky, Lo and Makarov (2004) modelled it for fund returns: the reported return is a moving average of the true one. The measurable consequence: volatility too low, correlation with equities too low — and Sharpe ratios calculated from them too high.
2022 supplied the object lesson: while the S&P 500 lost around 19%, buyout funds, on MSCI Burgiss data, stood practically at zero over the year (MSCI, 2023). In property the same picture: the unlisted Blackstone fund BREIT reported around +8% for January to November 2022, the listed MSCI US REIT index around −25% (Morningstar). Part of the difference is real (a different portfolio, active value creation), a substantial part a measurement artefact. That is what set off the “volatility laundering” debate: since January 2023 Cliff Asness (AQR) has accused the industry of now marketing infrequent valuation as an advantage — investors, he argues, are buying measured calm, not real calm (Asness, “Volatility Laundering”). The other side counters that long-term investors should not be trading on interim marks in any case, and that smoothing prevents panic selling. Both positions can be defended; what is not in dispute is the measurement finding: the NAV volatility of a semi-liquid fund is not a valid risk metric.
A second point follows from this: fees are tied to the NAV. The management fee is calculated on the carrying value, and many evergreen funds also charge the performance fee on unrealised NAV gains. That is legal and disclosed in the prospectus, but it is a structural conflict of interest; mitigations are the high-water mark, the hurdle rate and clawback — we show these mechanics on every fund page.
You will find harder information than the NAV in three places.
Behind “the NAV” stands a chain of roles. The valuation of the individual assets is prepared by the manager’s valuation team — functionally separated from portfolio management under Article 19 AIFMD; an externally appointed valuer must be professionally recognised and is liable to the manager for negligent errors. The industry benchmark is the IPEV Guidelines (to be applied for reporting periods from Q2 2026): fair value as an exit price, calibration at every valuation date — and the express note that for evergreen structures with continuous dealing in units, a merely quarterly valuation may not be sufficient (IPEV, 2025). The fund administrator calculates the NAV per unit from this, the depositary monitors the processes, the auditor tests the valuations in the annual accounts, and the regulator reviews the organisation. For ELTIFs, the technical standards (Del. Reg. (EU) 2024/2759) additionally link redemption frequency, notice period and liquidity buffer (see the chapter on liquidity management tools). This chain tests process and defensibility, not “the one right number” — even a properly audited NAV remains a Level 3 estimate with a range around it.
IPEV in detail. The Guidelines are consistent with IFRS 13/ASC 820 (the “exit price” principle) and no longer recognise a blanket illiquidity discount — illiquidity belongs in the inputs (multiple adjustment, discount rate). New or tightened: documentation discipline, the valuation of hybrid instruments and complex capital structures (liquidation preferences!), discounts for contractual transfer restrictions and, for the first time, guardrails on the use of AI. Since 2018 the Guidelines have explicitly treated the price of the last financing round not as a default fair value but as a calibration point whose informational value decays over time — relevant above all for growth and venture holdings with structured rounds.
Calibration is the real discipline. If you bought in at 10x EBITDA while peers were trading at 12x, you have to carry that relative discount forward — or justify unwinding it. IPEV also recommends backtesting realised exits against the last fair-value mark; the question to ask of a manager’s reporting: how often do exit proceeds differ from it by more than 10–20%?
Governance under AIFMD Art. 19. An external valuer may not sub-delegate; the fund administrator, who merely adds up the NAV, does not count as a valuer. Open-ended vehicles must value more often than annually, as their assets require. The ELTIF 2.0 standards additionally require reliable, up-to-date valuation data for each asset at every valuation date.
Address the incentive question openly. In classic closed-end funds carried interest only arises on realised exits; some evergreens even charge the performance fee on the immediate write-up of secondary positions bought at a discount. Above all, it is worth examining whether the fee is clawed back if valuations fall later (clawback).
De-smoothing in practice. Smoothed series in risk models import the smoothing into the allocation: volatility and correlation that are too low lead mechanically to inflated private markets weights in any optimiser. Two standard corrections: Geltner unsmoothing treats the reported return as an AR(1)-weighted blend of the true return and the previous period’s return and works back from there; the model of Getmansky/Lo/Makarov generalises this to moving averages of higher order. Both typically raise volatility and equity beta markedly and lower Sharpe ratios — de-smoothing delivers ranges, not truth. For venture, Woodward (2011) shows that “stale values” depress measured risk — the true risk is often twice the reported figures. A pragmatic alternative: add listed proxies (listed PE, REITs) as a measure of risk, not of return.
Governance questions for the manager: Who values externally, how often does the mandate rotate, and does the valuer merely sanity-check or produce a valuation of its own? Is backtesting disclosed? How quickly and how far were the marks adjusted in 2022/23? Performance fee on realised or unrealised gains, with what high-water mark, hurdle and clawback? Who sits on the valuation committee, and can portfolio management be outvoted there? Does the valuation frequency fit the redemption frequency — or are units redeemed monthly on the basis of quarterly marks?
NAV timing: the quiet transfer of wealth. Every investor deals at the established NAV. If it is still too high after a market fall (smoothing!), the redeeming investor is paid out more than their stake is worth; the difference is borne by those who stay. Conversely, a new subscriber buys in at too high a price; in rising markets both effects reverse. This is not fraud but a structural property of every vehicle that combines continuous dealing with delayed valuation — and it explains why gates, notice periods and the IPEV call for a higher valuation frequency also protect the body of investors who remain. Further reading: Getmansky/Lo/Makarov (2004); Geltner (1991); Brown/Gredil/Kaplan (2019); Asness (2023); IPEV Guidelines (2025).
Under the AIFMD rules: the valuation function must be independent of portfolio management; in practice that usually means a full quarterly valuation with monthly roll-forward. The IPEV Guidelines (2025) urge a higher frequency for evergreen structures; the ELTIF standards additionally link redemption frequency, notice period and liquidity buffer.
The NAV is the best rules-based estimate of the sale value — but an estimate with a range around it (“Level 3”), not a market price. Realised sales regularly deviate by a few per cent; in the secondary market, buyers paid an average of 87% of NAV in 2025 (Jefferies).
Because it is valued infrequently and with the help of models: quarterly marks plus roll-forward smooth the curve; valuers adjust to changes in value only with a lag. In 2022 the Nasdaq lost 33% while buyout funds stood almost at zero on MSCI Burgiss data — partly a genuine difference, in large part valuation inertia.
The effect whereby reported NAV returns are a moving average of the true performance: less measured volatility, lower measured correlation, inflated Sharpe ratios. Described in the research by, among others, Getmansky/Lo/Makarov (2004) and, for property, by Geltner (1991).
The bottom tier of the fair value hierarchy under IFRS 13: the value rests on material assumptions that are not observable in the market — model plus judgement instead of an exchange quote. Practically all the assets of semi-liquid private markets funds are Level 3; annual reports disclose the share.
The room for manoeuvre is tightly constrained by IPEV rules, independent valuation, the administrator, the auditor and the regulator — but it is not zero. Brown/Gredil/Kaplan (2019) find inflated marks above all at weaker managers during fundraising phases, and the market punishes them for it. Watch whether the performance fee accrues on unrealised book gains: then the manager profits from its own valuation.
It follows with a lag and usually in muted form: multiples and discount rates only catch up with the next quarterly valuations. In that phase the NAV can sit above the realistic sale value — secondary market discounts and redemption queues show the stress earlier.
Last reviewed: 16 Oct 2026 · Methodology · Not investment advice.