Net Asset Value (NAV) is the total value of a fund's assets minus its liabilities. For an open-ended unit trust, NAV is divided by units on issue to derive the unit NAV, the price at which new units are issued and existing units are redeemed.
For a private credit fund, NAV is typically calculated monthly. The asset side includes: the par value of performing loans, accrued interest receivable, cash and short-term liquidity. The liability side includes: accrued expenses, distributions payable, and any borrowings or hedging exposures.
Where loans are non-performing or in workout, NAV requires careful valuation, the par value may overstate recoverable value if a loan is impaired. Quality private credit funds maintain provisioning policies that step loan values down through staged impairment categories (Stage 1, performing; Stage 2, under-performing; Stage 3, impaired) and write down NAV accordingly.
For investors, NAV per unit is the relevant tracking metric. A fund's distribution yield is one component of total return; NAV stability or growth is the other. A fund with high distribution yield but eroding NAV may be paying distributions from capital rather than income, read the IM and audited accounts carefully.