Smoothing and unsmoothing: PE funds’ true net asset value

A long-time nemesis, for those who seek to track the private equity markets, is the issue of NAV or return smoothing.

Back in 2009 a Forbes article described how, when the Harvard Endowment liquidated a private equity position during the global financial crisis, it got only $0.60 on the dollar. Why? Because, in the words of the investment bank that was advising the fund, the PE funds held assets at “unrealistic pricing levels” and “fantasy valuations.”

The same article described a publicly traded fund-of-funds in the same endowment’s portfolio that . . .

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