How to Calculate Net Asset Value for a Hedge Fund

Net asset value reveals the percentage of a hedge fund's capital not claimed by liabilities.

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Choosing the right hedge fund to invest in can be a daunting challenge, but savvy investors use a variety of tools to compare the relative strength of different funds. Net asset value is one such tool that provides insight into the true value of different funds at different times. To calculate net asset value on a hedge fund, you must first choose a calculation method, then determine the fund's total assets and liabilities.

Choose a Calculation Method

The question of when to calculate asset values in a hedge fund can cause some confusion, but determines the method used. If a fund trades assets on multiple exchanges around the world, one exchange may be closed while two or three others are open. Because of this, asset values in some parts of the fund's portfolio will always be in flux. Some investors use the final asset values at the end of each region's respective trading day for the calculation, while others use the values from all holdings at a chosen moment in time.

Calculate Asset Values

Hedge funds hold a variety of assets in various states of liquidity, including stocks, currencies, options contracts and bonds. Hedge funds seeking new investors should provide in-depth information on their current holdings. When you are ready to calculate the asset values, according to your chosen method, multiply the quantity of each individual holding by its market value at that time to determine each holding's current value. Add all of the results together to determine the total asset value.

Calculate Liabilities

Hedge funds incur the same types of liabilities as other businesses, including debt payments, interest accumulation, salaries expenses and overhead. Add all of these expenses together to calculate the fund's total liabilities, keeping your chosen time frame in mind. Since net asset value provides a snapshot of value at a moment in time, only calculate current liabilities, including current payments of long-term debt.

Calculate Net Asset Value

The Securities and Exchange Commission defines net asset value for an investment business as the difference between the company's total assets and liabilities. Use the following formula as a reference for your calculations: Net Asset Value = Total Assets - Total Liabilities The larger the net asset value as a percentage of total assets,the more efficient the fund is at maximizing profit while keeping costs low. A higher total also indicates that a fund has more capital to invest, allowing it to earn larger returns.

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