NAV Discount/Premium
The percentage difference between a secondary transaction price and the fund’s reported NAV—discount means below NAV; premium means above NAV.
Allocator relevance: A real-time sentiment and liquidity signal—impacts portfolio rebalancing decisions, valuation confidence, and how allocators interpret “true” exitability versus reported marks.
Expanded Definition
A NAV discount (or NAV premium) describes the gap between the price paid in a secondary transaction and the fund’s reported net asset value (NAV).
- Discount: the market price is below reported NAV.
- Premium: the market price is above reported NAV.
This gap is not a single-variable judgment on “valuation accuracy.” It reflects a blend of market clearing dynamics: liquidity conditions, perceived asset quality, GP governance and transparency, fee/term burden, buyer demand, and the structure of the transaction. Discounts can widen when sellers need liquidity or when uncertainty rises; premiums can appear when scarcity, access, or high-conviction assets attract competitive demand.
Allocators treat NAV pricing gaps as a signal—about liquidity, confidence, and the cost of exiting—not just a critique of marks.
How It Works in Practice
Secondary buyers underwrite NAV relative to:
- expected future cash flows and exit timing
- portfolio concentration and asset quality
- GP reporting credibility and valuation methodology
- structural frictions (fees, carry, remaining fund life, governance constraints)
- supply/demand conditions and risk appetite
Discounts and premiums often move with broader markets, but the magnitude can be fund-specific—especially when information quality or governance differs materially across managers.
Decision Authority and Governance
For allocators, decision-making around NAV discounts/premiums typically sits with an IC, secondary desk, or portfolio management function. Governance focuses on:
- whether a transaction is liquidity-driven or thesis-driven
- how pricing relates to policy bands and portfolio construction targets
- whether the GP’s reporting and valuation approach is sufficiently transparent
- documentation of rationale (especially when selling at a discount)
Allocators may also use observed discounts/premiums to inform manager diligence and future re-up behavior.
Common Misconceptions
A discount proves the NAV is wrong.
A premium means the fund is “risk-free” or perfectly marked.
Discounts are purely market-driven and unrelated to GP transparency.
Key Takeaways
NAV discounts/premiums measure market clearing price versus reported marks.
They are best interpreted as liquidity + sentiment + information-quality signals.
Use them to inform portfolio actions and diligence—not as a single-factor verdict.