Premium to NAV

The buyer pays more than reported NAV

If a private-fund interest has reference-date NAV of $10 million and sells for $10.8 million, the transaction occurs at:

108% of NAV

or an:

8% premium to NAV

SEC-filed disclosures recognize that LP-led secondaries can trade at either a premium or a discount to the private fund's NAV at the chosen reference date.^[1]

Why a rational buyer may pay a premium

NAV is not necessarily equivalent to transaction value.

A buyer may believe reported NAV understates economic value because of:

• strong recent company performance not yet reflected in the mark
• expected near-term exits above carrying value
• conservative valuation practices
• scarce access to a highly regarded manager
• unusually attractive remaining portfolio assets
• limited remaining unfunded commitments

Paying above NAV can therefore be rational if expected future cash flows justify the price.

Example: expected exit above carrying value

A fund interest has NAV of $15 million.

The largest portfolio company represents half of that value and is already under a signed sale agreement at a valuation materially above the fund's last mark.

A buyer offers 105% of NAV, or $15.75 million.

The premium may reflect information showing that the reference NAV is stale relative to an expected realization.

The trade is not automatically expensive merely because price exceeds reported NAV.

Premium pricing can also reflect access value

Some private funds are difficult to access on a primary basis.

A secondary buyer may accept a premium because acquiring an existing interest provides:

• exposure to a sought-after manager
• participation in a mature portfolio
• earlier expected distributions
• a position that would otherwise be unavailable

That access value still needs to be justified by expected returns.

The same reference-date problem applies

A quoted premium depends on the NAV date.

If the underlying portfolio has appreciated significantly since that date, a 5% premium to stale NAV can still represent a discount to current economic value.

If portfolio value has fallen, the opposite can be true.

That is why buyers update reported NAV with company-level information rather than treating the reference mark as final.

Premium does not erase future obligations

A buyer paying above NAV may also assume:

• unfunded commitments
• recallable distributions
• contingent liabilities
• fund expenses

The full economic cost therefore extends beyond the premium purchase price.

SEC disclosures on secondaries emphasize that acquisition price, imperfect information and assumed obligations can materially affect outcomes.^[2][3]

Common mistakes

“Premium to NAV means overpaying.”

Not necessarily. Reported NAV may be conservative or stale.

“Premium transactions cannot produce strong returns.”

False. Returns depend on future distributions and remaining contributions relative to total cost.

“A premium means the fund's NAV was wrong.”

Not necessarily. NAV and negotiated transaction price serve different purposes and can use different information dates.

“Premium pricing means low risk.”

No. A buyer can pay a premium for a high-quality asset and still face valuation, leverage, liquidity and exit risk.

Premium-to-NAV underwriting should identify the specific reason the buyer is paying above the reported mark. “Better manager” is too vague; the premium should be linked to expected cash flows, valuation updates, access value or other measurable economics.