Having previously adopted complex, burdensome Net Asset Value (NAV) oversight models, fund managers are starting to look for more nimble options. This comes as more efficient NAV oversight is now being facilitated through new, disruptive technologies, and investment firms are taking note. 

We look at how asset managers’ approaches to NAV oversight have evolved over the last few years.

Responding to crises through NAV oversight 

Operational resilience, particularly around NAV generation, is absolutely key.

If there is a failure to strike a NAV or if a NAV is calculated incorrectly, the repercussions for asset managers can be incredibly serious, including mispriced portfolios, investment or hedging errors, and fiduciary breaches.  

Such mistakes may even invite scrutiny from aggrieved investors and regulators alike, leading to possible financial and reputational damage.  

Today’s increased cybersecurity threats and geopolitical concerns are putting NAV back in the spotlight, but there are many milestones that have impacted its trajectory. Following a systems outage at a major fund administrator in 2015, and then Covid five years later, institutional investors and regulators started asking managers more probing questions about their operational resilience, including in areas such as fund valuations.  

A number of global regulators subsequently introduced frameworks compelling fund management companies to increase their operational resilience, oversight of outsourced activities, and individual accountability when it comes to fund valuations.

Asset managers had little choice but to up the ante on their NAV oversight practices, whether in response to regulatory pressures or to proactively improve their operations.

NAV oversight takes precedence post-Covid

To ensure proper NAV oversight, asset managers had a few considerations:

• Their existing service providers to either have robust recovery measures in their BCPs or offer NAV oversight functions.  In some instances, asset managers had to put pressure on their administrators to address these issues.
• There was an influx of technology providers offering NAV solutions that enabled asset managers to oversee their fund administrators/replicate NAVs.
• Some asset managers built manual, resource intensive processes around their NAV oversight programs, often by incorporating oversight components into their broad enterprise wide data solutions.

Despite the early regulatory scrutiny, some jurisdictions didn’t put definitive requirements in place for funds to follow. NAV oversight became more voluntary and best-practice based than required. As a result, managers scaled back the initial rush to perform intensive NAV oversight as other dynamics took priority.

Amid performance conditions such as high inflation, rising operating costs, falling margins, and client pushback on fees, asset managers started looking for savings, with NAV oversight being a target.

Compounding matters further, more traditional asset managers started launching complex investment strategies, such as private equity, credit, infrastructure, and real estate. NAV oversight, which was already expensive and time-consuming, became even more complex.

For many cash-constrained asset managers in the early 2020s, NAV oversight was viewed as an onerous expense. They were challenged to find the balance between cost and ensuring accuracy.

The dynamics are changing once again

It’s now time for managers to re-energize their independent NAV oversight.

While managers may have saved incremental basis points (bps) by paring back their NAV oversight, firms still have a fiduciary responsibility to provide a NAV and have resiliency safeguards in place should there be an issue with that NAV generation, irrespective of whether they are outsourcing this work to an administrator or not.

Although not all regulators have introduced concrete legislation on operational resilience, they still expect managers to take a thoughtful approach to oversight. At a time when fundraising is becoming increasingly competitive, a failure to demonstrate robust NAV oversight could be the difference between winning and losing an institutional client mandate.

Technology has also evolved and is making NAV oversight more accessible, which is leading asset managers to reassess their approach. Costs are coming down exponentially as AI and machine learning (ML) replace the legacy technology stacks and manual intervention of previous NAV programs.   

The effectiveness of the technology has also improved. Through AI  and ML, it is now possible to predict NAV errors in real-time and isolate genuine problems from false positives and identify the root causes of the issues, making it easier to adjust the NAV production before it has an impact on the wider market.

As larger managers will typically have more funds, it goes that they will also have a greater number of administrator relationships. Technology-enabled tools of this type will make it easier for managers to oversee NAV generation across multiple providers.

In this new era of being able to keep funds safe with less overhead, it’s easier for managers to strike the right balance of cost and risk related to NAV oversight.

• Is it time to rethink your NAV oversight program?
• Are you spending too much for what you’re getting?
• Is it time to re-evaluate your technology, internal resources, processes, and vendors?

With risk and volatility primed as major themes in 2025, NAV oversight should be back on the priority list.