What’s the Risk?
Not every NAV change is a cause for concern. Markets move — and funds move with them. But when a NAV shifts sharply in a single day, especially beyond an established tolerance, it calls for scrutiny.
What’s Causing the Spike?
Legitimate market drivers include heightened volatility, the revaluation of hard-to-price assets, or large inflows and outflows. However, significant swings are just as often caused by operational failings. These may include:
- Delayed or missing pricing feeds
- Incorrect FX rates
- Late or incorrect trade bookings not captured in end-of-day valuations
- Unprocessed corporate actions
- Breakdowns in FX hedging strategies or stale forward rates
A recent example we’ve seen is a 3.8% NAV swing on a multi-currency fund, later traced to stale FX rates that weren’t updated due to a failed overnight job.
Why Tolerances Matter
Tolerance thresholds — typically set at 2% to 5% — provide a useful framework to separate expected movements from those that warrant deeper analysis. When breached, they signal a need to confirm that the change is justified and accurately captured.
What Happens If You Miss It?
Failure to investigate these movements risks more than operational inefficiency:
- Investors may transact at the wrong price
- Fund boards may raise questions about control adequacy
- Auditors or regulators may flag the absence of documented oversight
What Oversight Should Include
A strong NAV oversight process includes:
- Daily NAV variance checks
- Prompt review and documentation of any tolerance breaches
- Structured investigation workflows — including checklists, audit logs, and approval trails
- Trending analysis to escalate recurring issues and spot systemic weaknesses
Final Thought
NAV swings will happen — but robust oversight ensures they are understood, justified, and properly recorded. Tolerance isn’t just a line — it’s a lens for accountability.
What's next?
You can also read our recent article on why NAV Oversight Matters. Or if you have a question or would just like to talk NAV with our team, you can contact us here.
