What's the issue?
Accurate pricing is the foundation of a reliable NAV. When an asset price moves significantly out of line with its benchmark or peer group, the deviation can point to a stale price, an incorrect input, or a misclassification. Without tolerance checks, these deviations often slip through unnoticed.
What Causes the Divergence?
Common drivers include:
-
Delayed pricing feeds that fail to capture the latest market movements
-
Source hierarchies that give priority to prices outside market consensus
-
Manual overrides entered without sufficient transparency
-
Misclassification of an asset’s liquidity or category, affecting how and when it is priced
Why it matters
Even a single mispriced asset can materially impact the NAV, particularly in concentrated or illiquid portfolios.
Errors may:
-
Lead to NAV mis-statements
-
Trigger investor complaints
-
Surface in audit findings
-
Distort risk metrics and governance reporting
In short, inaccurate valuations undermine trust across the investment process.
How Oversight Can Help
Effective oversight requires more than capturing a price.
Firms should:
-
Benchmark asset movements against relevant indices
-
Flag exceptions that fall outside defined ranges
-
Ensure exceptions trigger a documented review process
-
Involve pricing committees where the impact is material
The key is not only to apply a price, but to be able to explain the price.
Final Thought
Price deviations are early warning signals. Spotting and addressing them quickly protects not just the NAV, but the integrity of the entire valuation process.
NAV oversight is only as strong as the checks behind it. See how Fund Recs makes exception monitoring simple.
