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Rising NAV Errors Highlight the Growing Need for Stronger Oversight

NAV Errors on the Rise: Strengthening Oversight and Control in Fund Reporting

A recent report from Ignites revealed that the number of asset managers disclosing net asset value (NAV) errors jumped 29% in 2022 compared to 2021, with 129 funds requiring NAV restatements. The key drivers identified were staff turnover, increasing operational complexity, and heightened market volatility, which amplified the materiality of errors. Beneath these issues, however, lies a deeper concern — gaps in the NAV control environment that continue to expose weaknesses in how funds validate and monitor their valuations.

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Evolving Service Models and the Risk of Fragmentation

Fund administrators and service providers responsible for NAV calculations have restructured their operations over time, prioritizing automation and functional specialization. While these advances have improved efficiency, they’ve also led to siloed expertise across processing teams. This separation can make it harder for administrators to maintain transparency and ensure consistent controls throughout the NAV production and validation process.

Maintaining Control Over the NAV Production Process

Given the rise in NAV errors, asset managers should take this moment to reassess their fund administrators’ control frameworks and oversight mechanisms. Key steps include:

• Assess operational controls – Confirm that your provider’s control environment adequately mitigates risks in both manual and complex workflows. Ensure exception procedures are clear, effective, and not generating unnecessary false alerts.

• Validate pricing processes – Review how secondary price sources are verified, particularly for securities without multiple pricing references. For illiquid or complex instruments, understand how valuations are confirmed and documented.

• Understand NAV sign-off procedures – Clarify what is reviewed during the NAV approval process and consider whether a contingent NAV validation service could enhance verification.

• Check data input accuracy – Confirm that all data inputs are validated before being used in automated NAV calculations.

• Review escalation protocols – Ensure escalation thresholds and timing for unresolved exceptions or reconciliation breaks are appropriate for current market conditions.

• Revisit KPIs – Evaluate whether existing performance indicators for your administrator still measure what matters. If they’re outdated — or nonexistent — redefine or introduce metrics that reflect modern operational priorities.
  
  
  

Reinforcing Internal Oversight

Fund managers should also evaluate their in-house NAV oversight procedures. The goal is to ensure effective review without duplicating the service provider’s work.

• Adopt an exception-based approach – Avoid full recalculations of the NAV. Instead, focus on targeted checks that confirm key valuation components.

• Timing matters – Determine whether critical checks occur before NAV publication or after the fact. Early detection remains crucial.

• Leverage new oversight tools – Ask your provider about recent enhancements in oversight technology or dashboards, and schedule demonstrations to see how your team can use them effectively.

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Operational Resilience and Continuity

Finally, firms must ensure they have a robust operational resilience plan. Your administrator should have an updated disaster recovery framework that aligns with your firm’s continuity objectives. Review it periodically and ensure it includes a clear NAV contingency plan to maintain operations during unforeseen disruptions.