Hello,

I have one rather elementary question. I was going through the reports of one Hedge Fund (i.e. Vltava Fund SICAV www[dot]vltavafund[dot]com/assets/dopis_2013_en.pdf) that presents its performance in NAV (Net Asset Value). How do withdrawals or deposits impact NAV? For example: when NAV grows by 20% p.a. (thanks to clients’ deposits) is the profit applied to clients the same (=20%) or can it be different?

To be more specific on my thoughts: Let’s say NAV = £10.000, the new client comes in and deposits another £2.000. From my very laic understanding NAV should increase by 20% although Hedge Fund did not realize any profit. So profit for clients would equal to 0.

So in this case although Hedge fund reports 20% increase in the NAV it was not generated by the profit but rather from additional deposit coming in.

Could anyone pls explain me what is the real performance of the fund?
Many thanks
Petr

PetrBK 

Hello, I have one rather elementary question. I was going through the reports of one Hedge Fund (i.e. Vltava Fund SICAV www[dot]vltavafund[dot]com/assets/dopis_2013_en.pdf) that presents its performance in NAV (Net Asset Value). How do withdrawals or deposits impact NAV? For example: when NAV grows by 20% p.a. (thanks to clients’ deposits) is the profit applied to clients the same (=20%) or can it be different? To be more specific on my thoughts: Let’s say NAV = £10.000, the new client comes in and deposits another £2.000. From my very laic understanding NAV should increase by 20% although Hedge Fund did not realize any profit. So profit for clients would equal to 0. So in this case although Hedge fund reports 20% increase in the NAV it was not generated by the profit but rather from additional deposit coming in. Could anyone pls explain me what is the real performance of the fund? Many thanks Petr

Usually the total net assets of a fund are called assets under management ("AUM"). This would be the GBP10k in your example. A fund then calculates a NAV per share by dividing the AUM by the total number of shares in issue. For instance, if we assume the GBP 10k fund has issued 100 shares to investors the NAV would be GBP 100 per share (100 * 100 = 10,000).

If an investors now subscribes for an additional GBP 2k, then the AUM increases to GBP 12k, but the outstanding shares also increases by 200 shares to 1,200. Therefore the NAV remains unchanged - 12,000 / 1,200 = 100.

In practice NAV is often used interchangeably with AUM and this creates some confusion. However, NAV usually refers to the price per share. Also, people would not call it the NAV per share, rather it is just called NAV. Usually if someone talks of x million of NAV, they are actually referring to AUM, and if the talk of a number from 1 to 1,000 (or even 50,000 for older funds), they are referring to NAV per share. Knowing the context of the discussion usually helps in determining which NAV people are referring to.

Edit: The real performance would be calculated by using the ending NAV per share and determining the growth from the beginning NAV per share.