NAV: the quarterly calculation procedure and the reconciliations behind it

Before you start

Three documents before you open the ledger: the LPA's capital account and allocation section, the investment register with each position's cost basis and prior-quarter fair value, and the bank statements for every account the fund holds.

The LPA's allocation section does more than state the carry percentage. It tells you the order in which income, expenses, gains, and losses are allocated, the basis of the carried interest accrual, and whether a catch-up clause affects the sequence. Get that logic right before the first number is calculated.

NAV is a balance sheet result, not an approximation. Every dollar in the fund sits on one side or the other: either it is an asset you can point to or a liability you owe to someone. If the two sides do not agree, a transaction has been posted incorrectly.

Step 1. Mark each investment to fair value

Under ASC 820, fair value is the exit price in an orderly transaction between market participants at the measurement date. Most venture and private equity positions are Level 3 assets: there is no quoted price (Level 1) and no directly comparable observable transaction (Level 2), so the mark rests on the fund's own analysis under its written valuation policy.

Start with the positions that have the clearest inputs: any company that closed an arm's-length financing round in the quarter, completed an exit, or has publicly traded comparables. Use the round price as the starting point, then calibrate it for liquidation preferences, the class of security the fund holds, and any minority discount that would apply in a hypothetical arm's-length sale.

Work from there to positions where the last observable transaction is more than eighteen months old. Calibrate the prior mark against current comparable company multiples, the company's own financial progress, and any updated guidance from the board. Document the inputs, the calibration method, and the reason the mark was maintained or changed. A mark that holds flat when comparable companies fell will draw auditor scrutiny; so will a mark that rises when comparable companies fell.

The general partner owns the mark. An administrator can maintain the investment schedule and input the approved values, but the GP reviews the support, approves the conclusions in writing, and signs the representations letter at year-end. The administrator's job is to keep the records; the GP's job is to make the judgement.

Step 2. Reconcile cash to the bank

Pull the bank statement for every account the fund touches: the main operating account, any capital call escrow, the management company account if fund expenses flow through it, and the credit facility account if the fund draws on a subscription line.

For each account, tie the closing bank balance to the cash balance in the general ledger. List every reconciling item by name, amount, and date: deposits in transit (arrived at the bank after the statement cutoff), outstanding payments (issued in the ledger but not yet cleared), and any items on the bank statement not yet posted to the ledger. Unidentified reconciling items are not acceptable; each one is a transaction that has not been fully accounted for.

A subscription line draw creates two entries simultaneously: a cash receipt and a loan payable. The net effect on NAV is zero, because the asset increase and the liability increase are equal. When capital is subsequently called and used to repay the line, the LP wire arrives as cash and leaves as a repayment, again with no net NAV effect. The draw and repayment do affect TVPI and DPI, because the denominator, paid-in capital, is lower while the line is outstanding and higher once it is repaid.

Step 3. Assemble the balance sheet

Assets. Cash at the reconciled bank balance. Investments at fair value, taken from the approved investment schedule. Receivables for accrued interest on any promissory notes or interest-bearing holdings. Prepaid expenses for items like directors and officers insurance paid in advance. Unfunded commitments to portfolio companies are not a fund asset; they are a future obligation that enters the ledger only when a capital call from the portfolio company is received and the fund wires proceeds.

Liabilities. Management fee payable: the accrual for the current period, computed from the LPA formula, or any invoiced amount not yet wired. Professional fees payable: legal, audit, and administration fees either invoiced or accrued from engagement letters for work completed in the quarter. The subscription facility balance, if any. Carried interest payable only if a cash distribution has been declared but not yet settled.

NAV is assets minus liabilities. It is the same number as total partners' capital, which step 4 confirms from the equity side.

The management fee accrual carries a timing risk: if the fee base changed in the quarter, most often because the fund crossed from the investment period into the harvest period and the base shifted from committed capital to invested capital, the accrual must use the old base up to the effective date and the new base from that date forward. Post the accrual to the day.

Step 4. Confirm capital accounts foot to NAV

Open each partner's capital account at the prior-quarter closing balance. Add contributions received in the quarter, subtract distributions paid, and allocate income, gains, losses, and expenses in the percentages the LPA prescribes. Book the carried interest allocation last: it moves a share of the LP accounts' income and unrealised gain to the GP's account.

Sum all capital accounts, limited and general partner together. That total must equal NAV. If it does not, the discrepancy is in one of three places: the allocation arithmetic (a rounding error in the percentage calculation, or a transaction missed in the roll-forward), a balance sheet line that does not agree with its source (a liability not posted, an asset overstated), or the cash reconciliation (an unresolved item that affected the ledger balance). Trace the difference before closing the books. A rounding error left in the accounts compounds into the next quarter and grows.

The ILPA Reporting Template v2.0, required for funds still in their investment period since Q1 2026 under ILPA's guidance, asks GPs to report NAV, the NAV per unit for each LP, and the NAV bridge showing the quarter's movement. The capital account roll-forward produces every number the template needs.

The quarter-over-quarter NAV bridge

The bridge explains NAV movement in one table: opening NAV, plus contributions, minus distributions, plus or minus changes in fair value, plus or minus net income and expenses, equals closing NAV. Each line has a dollar amount. The lines foot.

Build the bridge as a check before the statements go out. If the fair value change in the bridge does not match the change in total portfolio value on the investment schedule, a transaction was posted to the wrong account. If expenses in the bridge are lower than the management fee and professional fee accruals, an accrual was missed or double-counted. The bridge is also the clearest thing to send an LP who asks why NAV moved.

What goes wrong

Fair value marks that arrive after the close has started. Marks that shift after the carried interest accrual is run require a recalculation that reopens the capital accounts. Set a hard deadline for valuation inputs before the quarter ends and enforce it.

A subscription line repayment that crosses the quarter end. If capital is called in the last week of the quarter and the repayment clears in the next quarter, the credit facility balance at quarter end includes an amount the fund intends to repay immediately. Disclose the outstanding balance and the subsequent repayment in the LP statement notes.

The management fee base that changed mid-period. The fee step-down from committed capital to invested capital is not automatic in the general ledger; it requires a manual update to the accrual formula at the effective date. Flag the effective date to the administrator in writing before the quarter closes, with the LPA language, not after.

Capital accounts that do not foot to NAV by a small rounding amount. The most common cause is an allocation percentage that rounds to slightly more or less than 100% when applied to a specific income amount. Carry the rounding into the GP's account. Do not leave it as a free-floating balance; it compounds.