What is NAV reconciliation? The process, an example, and where it breaks.
NAV reconciliation is the set of pre-release checks a fund administrator runs on a prepared net asset value (NAV) before it goes to investors. The reviewer does not recalculate the NAV. They compare each figure to its source: cash, positions, prices, FX, fees, accruals, capital activity and the movement in the NAV itself. A break above tolerance is investigated and signed before release.
In short
- NAV reconciliation is the fund administrator's pre-release review, not the calculation. The reviewer tests the prepared NAV against its sources.
- It differs from calculating the NAV, from running a shadow NAV, and from the manager's own NAV oversight. Most administrators do one calculation and one review.
- On a dealing morning the review runs in parallel with the calculation, then waits for the final figures. The checks compare cash, positions, prices, FX, fees, accruals and the NAV movement to tolerances the firm has set.
- Breaks come from stale prices, missed accruals, keying errors and differences the system flagged but nobody investigated. A worked example below shows a 0.16% NAV error from one stale price and one missed accrual.
- Guernsey's pricing controls guidance asks for limits on key elements, movements beyond those limits investigated, and the outcome signed by a suitably senior member of staff.
- Automated, the checks run in seconds: on our demo book, 371 checks across 6 funds run in under 3 seconds, measured.
What is NAV reconciliation for a fund administrator?
NAV reconciliation for a fund administrator is the pre-release check of the prepared net asset value against its sources. The term carries three closely related meanings, and the administrator's desk uses all three.
First, a reconciliation is the comparison of one figure to another: cash to the bank statement, positions to the custodian's holdings file, the price in the accounting system to the price on the feed. That is the narrow, technical sense.
Second, NAV reconciliation is the set of checks the administrator runs on the NAV before it is released. Cash, positions, prices, FX rates, fees, income accruals, subscriptions and redemptions, and the movement in the NAV itself are all compared to their sources or to tolerances. This is the sense the brief uses when it says "the NAV reconciliation process".
Third, it is the morning job. A NAV reviewer or a head of fund accounting reconciles the NAV. They run the checks, investigate the breaks, sign the result and release it. That is what a fund administrator means when they say "I reconcile NAVs".
What a NAV reconciliation is not: it is not the calculation of the NAV. The administrator's accounting system calculates the NAV. The reviewer checks that calculation. The two functions are separated, and the separation is the control.
How is NAV reconciliation different from calculating the NAV, from a shadow NAV, and from NAV oversight?
NAV reconciliation, NAV calculation, shadow NAV and NAV oversight are four different things, and they are often confused because the words overlap and the roles differ between firms.
| What | Who typically runs it | What it produces | When in the morning | What it proves |
|---|---|---|---|---|
| NAV calculation | Fund administrator (the accounting system) | The NAV per share or unit | First, as soon as the files arrive | The fund's net asset value at the valuation point |
| NAV reconciliation | Fund administrator (a reviewer, separate from the person who entered the data) | A list of breaks and a signed release | In parallel with the calculation, then waits for the final NAV | The NAV agrees with its sources within tolerance |
| Shadow NAV | Manager, or a third party for the manager | A second, independent calculation of the NAV | After the administrator releases, or in parallel | A full recalculation produces the same answer |
| NAV oversight | Manager or ManCo | A documented review of the administrator's NAV and controls | After release, or periodically | The manager has reviewed and accepted the administrator's work |
A fund administrator runs the calculation and the reconciliation. Most do not run a shadow NAV. A shadow NAV is a full second calculation, typically run by or for the investment manager as part of their oversight of the administrator. NAV review still in Excel describes the administrator's morning review in more detail.
NAV oversight is what the manager does. The manager oversees the administrator. That oversight may include comparing the administrator's NAV to a shadow NAV the manager runs, or it may be a periodic review of the administrator's controls, reports and exception logs. Oversight is the manager's job. Reconciliation is the administrator's.
What does the process look like on a dealing morning?
On a dealing morning the NAV reconciliation runs in seven steps, most of them in parallel with the calculation itself.
- Collect the source files. The custodian's cash and positions, the price file, FX rates, broker confirms of trades that settled, the register of subscriptions and redemptions. Some arrive by SFTP, some sit behind a login, one comes as a PDF.
- Load the files into the review. In a spreadsheet this is copy and paste, then repair what the paste broke. In a tool it is drag-and-drop or automatic collection per source.
- Run the checks. Cash to the bank file. Positions to the custodian. Each price to the feed. FX rates. Fee accruals. Income accruals. Subscriptions and redemptions to the register. Compare each to its source, or to a tolerance where the figure is calculated.
- Wait for the final NAV. The calculation completes. The accounting system produces the NAV per share and the movement from the prior valuation.
- Check the NAV movement. Compare the movement to a tolerance. A dealing fund with steady flows may tolerate 2%. A fund that is winding down may tolerate 0.1%.
- Investigate the breaks. Every difference above tolerance is a break. The reviewer investigates in order of size, traces each to its source, decides whether to accept or escalate, and records the reason.
- Sign and release. A senior reviewer clears the last break, signs the review, and releases the NAV to the manager and the register.
The time this takes depends on the breaks. If every figure agrees, the work is minutes. If three prices are stale and an accrual is missing, the work is hours, because the reviewer must trace each, decide whether the accounting entry should change, and document the decision.
A tolerance is the size of difference the firm has agreed to accept without investigation. A tolerance of 0.5% on a price means a price that moved 0.4% overnight is accepted; one that moved 0.6% is investigated. Tolerances are set per fund, per check, by the firm's senior reviewer, and every change is recorded.
A break is a difference above tolerance. It may be correct (a large trade settled, so the cash moved by more than 2%), or it may be an error (a price feed failed, and the system is using yesterday's price). The break does not say which. That is what the reviewer investigates.
Where does a NAV reconciliation break, with a worked example?
A NAV reconciliation breaks when a figure in the prepared NAV does not agree with its source, or when a movement is larger than the tolerance. The most common causes are stale prices, missed accruals, keying errors, timing differences and calculation logic that changed without the reviewer knowing.
A stale price is a security whose price on the feed did not update. The system uses the prior day's price. If the security moved overnight and the holding is large, the NAV is wrong. A missed accrual is an income payment or a fee that was not recorded. A keying error is a subscription or redemption amount typed incorrectly. A timing difference is a trade that settled at the custodian but was not yet entered in the accounting system, or vice versa.
Here is a worked example with synthetic figures. The fund is a daily-dealing equity fund. Net assets yesterday were 10,000,000. The reviewer has set a tolerance of 0.5% on individual prices and 2% on the NAV movement.
| Check | Source figure | NAV figure | Difference | Investigation |
|---|---|---|---|---|
| Cash | 245,000 | 245,000 | 0 | Agreed |
| Position ABC | 10,000 shares | 10,000 shares | 0 | Agreed |
| Price ABC | 52.40 | 51.00 | +2.7% | Feed updated, system did not. Stale price. Accept: accounting re-prices overnight. |
| Position XYZ | 5,000 shares | 5,000 shares | 0 | Agreed |
| Price XYZ | 104.20 | 104.20 | 0 | Agreed |
| Accrual: ABC dividend | Expected 2,000 (ex-div yesterday) | 0 | 2,000 | Not recorded. Missed accrual. Escalate. |
| NAV | 10,031,000 (recalculated with correct figures) | 10,015,000 | -0.16% | Within 2% tolerance but wrong. Two errors offset partially. |
The stale price cost 14,000 (10,000 shares at 1.40 per share). The missed accrual cost 2,000. Together they cost 16,000, which is 0.16% of the NAV. Both are common, both are detectable, and both require judgement. The stale price may be accepted if the accounting system re-prices the position overnight and the manager receives the corrected NAV before trading opens. The missed accrual is escalated because the position has gone ex-dividend and the fund is entitled to the payment.
This is a worked, synthetic example for illustration only. Real breaks depend on the fund's assets, the quality of the data feeds, the accounting system's configuration, and how the administrator has set the tolerances.
What do regulators expect of these checks?
Regulators expect documented controls, limits on key elements of the valuation, movements beyond those limits investigated, and the outcome signed by someone senior. The Guernsey Financial Services Commission wrote it down in November 2021 in its guidance on pricing controls in respect of open-ended collective investment schemes. The guidance's definition of Manager starts with "the designated administrator", so it is written for the administrator's desk. The note sits under Rule 3.11(1) of the Authorised Collective Investment Schemes (Class B) Rules and Guidance, 2021, which requires the manager and trustee to have appropriate controls, procedures and checks in place for the pricing of units; the guidance under that rule points them to this note for what those are.
Paragraph 2.11 of the GFSC pricing controls guidance states:
Managers should set a limit for certain key elements of a valuation such that any movement beyond that limit is investigated and the investigation and evidence of the outcome should be evidenced by the signature of a suitably senior member of staff. Such key elements include: share/unit price; stock prices; exchange rates; income accruals and expenses, and tax.
The same paragraph continues:
If a price has remained unchanged for a fixed period it should be investigated to ensure that movement in the price has not been overlooked.
The guidance also asks for cash to be reconciled at the bank regularly (paragraph 2.12), units in issue reconciled to the register at least monthly (paragraph 2.13), and a cut-off procedure to guard against omissions or duplications (paragraph 2.5). Read together, these paragraphs describe a NAV reconciliation.
An auditor testing the control asks what was compared, to what, at which tolerance, by whom, and when. A spreadsheet review that records only initials in a cell answers one of those five. A documented review with a tamper-evident audit trail answers all five before the auditor asks.
The regulator's text is the authority. Firms should check it with their compliance function and apply it to their own process.
What changes when the same checks are automated?
Automated, the checks run in seconds and the evidence is recorded as the work is done. The seven-step process above compresses to three: collect the files, run the checks, investigate the breaks. The reviewer still signs, but the hours spent on collection, re-keying and comparing figures that agree go away.
On our demo book, 371 checks across 6 funds run in under 3 seconds, measured. The checks are the checks a fund administrator runs before release: cash, positions, prices, FX, trades, fees, accruals, subscriptions, redemptions and the NAV movement. Each check compares the figure in the accounting system to its source, or to the tolerance the firm has set.
The reviewer sees only the breaks, ranked by their impact on the NAV. Every figure is one click from the cell it came from. The investigation, the reason and the signature are written to an append-only, tamper-evident audit trail. What was compared, at which tolerance, by whom and when is answered before the question is asked.
The judgement stays human. The reviewer still decides whether a break is acceptable, whether it should be escalated, and whether the NAV is released. The checks are deterministic and explainable: same files, same answer, every time. There is no generative AI in the numbers.
The files are dropped in, or collected per source once that is set up at onboarding. The checks run inside your own Microsoft tenant. Nothing leaves it. The solution is deployed as one copy per client, single-tenant by construction, with keys in your own Azure key vault. To see each screen, read what automated NAV reconciliation looks like. For the business case, read why automate the NAV review.
Frequently asked questions
Is NAV reconciliation the same as calculating the NAV?
No. The calculation produces the NAV. The reconciliation checks it. The administrator's accounting system calculates the NAV from the fund's holdings, prices, cash, fees and capital activity. The reviewer reconciles that NAV by comparing each input to its source. The two are separate functions, and the separation is the control.
Does a fund administrator need a shadow NAV to reconcile a NAV?
No. A shadow NAV is a full second calculation, usually run by or for the investment manager as part of their oversight. An administrator reconciles the one NAV the accounting system produces by comparing it to the source files: the bank statement, the custodian's holdings, the price feed, the register. No second calculation is needed for that.
What is a NAV break?
A break is a difference above tolerance. The reviewer has set a tolerance on each check: 0.5% on a price, 2% on the NAV movement, zero on the number of shares. A difference within tolerance is accepted. A difference above tolerance is a break, and it is investigated. The break may be correct, or it may be an error. The investigation decides which.
Who signs off the NAV after reconciliation?
A senior reviewer at the fund administrator signs the NAV after reconciliation. The signature evidences that the checks have been run, the breaks have been investigated, and the NAV is released. The regulator expects the signature to be by a suitably senior member of staff, and for the evidence of the investigation to be kept.
Is Microsoft Dynamics NAV the same thing?
No. Microsoft Dynamics NAV is an enterprise resource planning system, now called Dynamics 365 Business Central. It is not related to net asset value reconciliation for investment funds. The abbreviation NAV in fund administration means net asset value. The two uses of the same three letters are unconnected.
See the checks NavRecs runs every morning → The checks
How it stays inside your own tenant → Security