Glossary · Operations and rules

What is fair value?

Fair value is what an asset would fetch in an orderly sale between willing buyers and sellers on the measurement day. Accounting standards require funds to report it.

In practice

Fair value for private holdings is usually set by the manager, often with a third-party valuation firm’s help, using comparable-company multiples, recent transactions or discounted cash flows. Standards such as ASC 820 and IFRS 13 rank inputs by how observable they are. It appears in quarterly NAV reports and audited financials. It is not cost, and it is not a realized sale price.

An example

Round numbers, not a real fund

Say a fund owns a company with no market price. It estimates fair value, such as 8 times earnings, from similar companies’ multiples, and updates it every quarter.

Why it matters

It is how private funds value what they hold between sales, so investors’ statements and fees rest on it.

In the news

Related terms

NAVNet asset value, or NAV, is a fund’s assets minus its liabilities. In private funds it is usually reported quarterly and rests on the manager’s valuations.
RVPIRVPI, residual value to paid-in capital, divides the value of what a fund still holds by the money investors paid in. It is the unrealized part of the return.
TVPITVPI, total value to paid-in capital, adds the cash a fund has already returned to the value it still holds, then divides by the money investors paid in.
Fund administratorA fund administrator is an independent firm that keeps a fund’s books, calculates its net asset value, processes capital calls and distributions, and handles investor reporting.
EBITDAEBITDA is earnings before interest, taxes, depreciation and amortization, a measure of a company’s operating profit. Buyouts are often priced as a multiple of it.

The terms, in the news each morning.

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