NAV Oversight And Contingency Needs Automation

Shanny Basar
State Street Automates Fixed-Income ETFs

The oversight of the production of net asset values for funds could significantly benefit from automation, especially in times of high market volatility and stress.

Consultancy Celent said in a report, sponsored by Bloomberg, that NAV validation, oversight, and publishing continues to be a difficult and often manual process. The study continued that production of a firm’s NAV is a crucial activity because if it is delayed or incorrect, there are significant business continuity, reputational, and legal implications, making this a source of stress for fund boards, fund management, and regulators.

The chief operating officer of an EMEA asset manager said in the report: “My nightmare is ending up in the Financial Times with a headline like XYZ pays fine of millions of sterling to the FCA for insufficient oversight of outsourced processes.”

Celent interviewed global asset managers about their NAV processes, specifically oversight and contingency, during the first half of this year.

“What became clear is that asset managers see “striking the NAV” as a key function, alongside essential oversight and contingency arrangements that can help mitigate internal and external failures,” added the consultancy.

NAV oversight and contingency. Source: Celent.

The report continued that asset managers are highly reliant on third party administrators to produce their NAVs. Most buy-side firms check selective portfolios and use proxy benchmarks to check potential NAV anomalies from the third-party providers, but this process is still very manual.

Brad Bailey and Cubillas Ding, authors of the report, wrote: “Automating the input from external fund administrators or custodians with internal systems is key to creating the NAV while ensuring its accuracy. A clear takeaway from our conversations is the need for oversight tools that are more automated and are lighter and cheaper.”

Celent added that since NAV is a point-in-time calculation of the fund’s price, it must reflect the accurate market value for each underlying security at the time the NAV is calculated.

“Especially during economic and financial crises, the efficiency and effectiveness of “chain-of- control” activities comes under increased vigilance,” added the report. “In fact, we have seen growing demand for a clearer picture of the NAV production and its oversight from regulators, boards, and fund management.”

Global asset managers have the biggest challenges in NAV production as they have to deal with multiple regulatory jurisdictions, retail and institutional offerings and different asset classes including alternatives, real estate and private equity holdings.


In addition, due to the COVID-19 pandemic, the consultancy expects regulators will increasingly focus on operational resiliency across the financial industry.

Brad Bailey, Celent

“In terms of NAV contingency, firms are mostly reliant on their primary third party providers (TPAs) to ensure continuity of NAV publication, especially in times of market stress and/or outage scenarios,” said Celent. “Additionally, firms recognize that should their primary NAV production go down for an extended period, there is no easy way to create a daily (contingent) NAV.”

In the report 70% of asset managers said COVID-19 will have them rethinking their contingency and business continuity plans.

“Where possible, managers see the potential for new approaches and tools that can offer synergies across oversight and contingency rather than pursue distinct and duplicative efforts for each,” said the report.

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