Secondaries Explained

Reference · Pricing & valuation

NAV (net asset value)

A fund's total holdings value, per the GP's own marks. LP stakes trade at a premium or discount to NAV, exactly as company shares trade against the last round.

Worked example

A worked example of NAV vs. cash actually realized (illustrative figures):

  1. A fund has invested $500 million across 12 companies. The GP's latest quarterly marks put the aggregate current value of those holdings at $650 million — a gross NAV multiple of 1.3x, before any fees or carry are deducted.
  2. That $650 million NAV is the GP's own estimate, built from the latest financing rounds, comparable public multiples, or (for some holdings) still-held-at-cost marks for very recent investments — it is not the same as $650 million in cash the fund could distribute today.
  3. A secondary buyer purchasing an LP stake in this fund doesn't pay full NAV; they negotiate a discount that reflects how confident they are in the GP's marks, how liquid the underlying 12 companies actually are, and how long they'll likely have to wait for real distributions.
  4. The gap between a fund's reported NAV and what it can actually distribute in cash (its DPI) is the single most-scrutinized number in any LP-led secondary negotiation.

Where this trips people up

Net asset value is treated as a market price when it is a periodic estimate, usually prepared by the manager and reported with a lag of a quarter or more. In fast-moving markets, a stake priced against last quarter's NAV is priced against information that is already out of date — a large part of what a discount is actually compensating for.

Frequently asked

Who calculates NAV?

The manager, typically with a valuation policy and varying degrees of external review. Standards differ by asset class and jurisdiction, which is why buyers benchmark marks rather than accepting them.

Why does the reporting lag matter?

Because a transaction priced today may reference a valuation date months in the past. Both sides are negotiating over a number that neither believes is current, which is one reason pricing conventions in this market are expressed as a percentage of NAV.

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