One of the challenges with an
open ended fund is this moving

valuation of what the value of
all the assets of the company

are, that investors are best
investing into, as time moves

on. Because if you have
investors coming in at these

different time periods, then
suddenly the investor who came

in at time zero, and the
investor who came in two years

later, may have completely
diluted each other and caused

the problem, the solution to
that problem is net asset value.

In this video, we're gonna talk
about net asset value, how it's

determined, and how you can use
it for an open ended fund.

Net Asset Value is the key tool
for figuring out what the value

is at any given point, so that
you don't improperly take away

the rights of an investor based
on time. To make that a little

bit more clear, let's look at a
whiteboard. So let's talk about

the scenario in which this can
take place. Let's use a very

simple example. Let's say you
have an investor who invests

Oops, my pen who invests with
you here, right? He buys in here

and he gives you $1 million. Now
with that $1 million, you have

put it into a into a property.
And in that property, you have

done a lot of things. So this is
when you bought it right here.

Now, maybe you you did a lot of
construction here, and maybe you

kicked all the tenants out

here and released here.

Now, you've still got this
property here, right. So the

value of this has obviously
changed. There has been there

has been appreciation that has
taken place over this period of

time. Let's say this is three
years later. There's been

appreciation this taken over
this period of time you've done

construction, you've kicked
tenants that you guys have been

together through thick and thin
for these three years. And now

you have someone else who comes
to you give him a different

color. And he comes to you here.
And he says I am going by let's

say he the red guy, let's change
him. He owns 20% He gave you $1

million for 20%. And now let's
say that now this blue guy, he

comes to you and he says okay,
great. Here is $1 million for

20%, just like the red guy got.
Sounds fair, right? Well, what

about all this thing that's been
taking place over this period of

time, this building isn't worth
that 5 million anymore. It's

worth more, you've done a lot of
work, you've added value.

There's been appreciation,
you've retested the old

building. So it's not worth that
amount. This is the problem that

is solved by by net asset value.
It's determining what this value

what this person needs to pay,
based on what this acids value

is. So let's go through exactly
how we can do that. And so you

will erase Here we go. So the
challenge of figuring out net

asset value is very simple in
one, one version of it, and it's

very complex and another version
of it. Let's say the most

classic example of a mutual
fund, which is a bucket a stocks

and bonds here here here, right?
Every day, it's a there's still

a bucket there. And things come
in and they go out, right?

There's always an addition and
subtraction of, of new things

coming in and other things going
out. Well, did you know that

mutual funds actually don't
trade in real time? When you buy

a mutual fund, or you sell a
mutual fund, you're not doing

you're not actually buying it,
the minute you hit go from your

brokerage account, you're
actually buying it at the end of

the day, I think it's like at
530, or something Eastern time.

And that's because what needs to
happen before you figure it out

before you do it, is that this
bucket? Let's look, let's blow

this up. So we can see what's
happening.

This bucket of in the mutual
fund. Each individual piece,

each individual piece is figured
out what its value is that day.

So if it's a stock, we'll see if
it holds stocks only. They all

the different stocks are added
up together. It said, Okay, if

we were to sell this whole
bucket today, what valid price

could we get it for? And then
what we would divide it by the

number of outstanding units,
that comes up with the net asset

value for the day. And when it
closes and at about 530. When

you buy your mutual fund, that's
when you're actually buying and

because then you know what the
net asset value is. So net asset

value is all of the assets minus
liabilities. divided by number

of units, comes up with that
share price. Okay, so that makes

sense, right? Now, what is hard
to do is what about the case

where we're not talking about
when we're not talking about a

mutual fund, when like in the
example, we're talking about

buildings, and real estate. And
these are all purchases of

different buildings in real
estate, and they've all got

different appreciation things
going on, and they've got

different re tenanting going on.
And they've got all sorts of

things, there's construction
going on. How on earth do you

figure that out? Because you
can't do that every day. There's

just too many things. If you
even had five, five buildings,

and you were trying to figure
out the net asset value, it

would be really hard to figure
out what it is every day, you

have to come up with five
actual, you know, legitimate

values. Because real estate is
so illiquid, it's really hard to

figure out exactly what that
value is at any given point. So

what here's what companies do,
they say, Okay, we are going to

allow investors in here at time
zero, and then we're going to do

some stuff with that money. And
then let's say these are

quarters, one, quarter one,
quarter two, quarter three,

quarter four. So here is here is
year, 11234 years, year two, and

if I make a mistake, I don't
need to hear about it in the

comments. You get the idea. All
right. So you got year one, year

two, year three, as they go on,
so let's say every quarter, so

this quarter, q1, the team gets
together and they do an

evaluation and they calculate
everything. Okay? We know that

this is now worth $100 the unit
still now, Q let's skip ahead to

year one, q two, q one, year
one. Okay, now we've got another

building, and we've also done
some other there's been some

appreciation, and the management
team determines that now it is

worth $110 A unit and you've
done some more things and then

you have some purchases that go
on. And oops q1 And you Have a

mass downsizing in terms of all
of your tenants leave. So now

management decides, oh my
goodness, our net our value, if

we had to sell it all today has
gone down radically, it's now

$95 A unit. And you're only
sweeping money in once that

determination of the net asset
value is determined. Here, I'm

making the assumption that
there's also there's

determinations here and here. So
that's how net asset value

works. Now, quarterly net asset
value determination for a for

real estate is still really
tricky. It's a lot of work. So

most companies do it, do it
annually. Some do it quarterly

still, there's some also do it
by end really, the challenge is

finding out what's going to work
the best, and finding out what

that mechanism for determining
mostly what that asset value is

determining the liabilities
isn't that difficult, but

determining what the net asset
value of an illiquid product at

a regular interval is
challenging. So when doing it,

that's really the big, the big
thing that takes the most amount

of time, is figuring out that
net asset value, the asset

itself, and then dividing it by
the number of units, number of

units, that's very easy to
figure out. So I hope that

helps. Let's go over some key
takeaways here that go through

net asset value again, just to
really make sure we're rock

solid here. Number one, net
asset value, or nav as we call

it, most of the time, it's a
critical metric to understand

the open ended investment
itself, it impacts the pricing

that investors are able to go
into, and whether or not they

can what price that they can
exit from. Number two, the

calculation of nav is done by
adding the assets or as taking

the assets, subtracting out the
liabilities to create the total

value, and then you divide that
value by the number of shares

outstanding or units
outstanding. What that does is

it gives a per unit value.
Number three, nav can be used

for assessing the performance of
investments as well. It helps

you identify first, the true
worth of the investments. And it

helps in the management of the
portfolio. All fund managers

want their nav to go up. So they
that shows a good level of

performance. Number four market
fluctuations change this nap. So

it's that market fluctuation and
the value of each individual

asset that's changing over time.
It's the market that's actually

driving it right the markets,
the one that determines value.

So that's changing over time,
and it will change the decisions

that are made not only by your
investors, but also by the fund

manager themselves. And number
five, transparent and accurate

calculation of nav is crucial
for giving your investors not

only an accurate number that
they can rely on, but also for

that transparency so that they
understand how it was

calculated, and so that they can
feel like they're truly being

informed with full disclosure
about the material thing that's

changing which is net asset
value. My name is Tilden

Moschetti. I am a syndication
and private equity fund

management attorney for the
Moschetti syndication Law Group.

If we can help you establish
your own open ended fund, or if

you're doing a closed ended fund
and be compliant with the SEC is

Rule of Regulation D rule 506 B
and 506. C, we'd love to talk

with you and strategize about
how we can help you move from

where you are today to being
more successful and getting your

funds put together in the right
way that will give you peace of

mind. Keep your investors happy
and ultimately make you

successful.