Nowcasting Net Asset Values: The Case of Private Equity.

The article focuses on developing a state space model (SSM) methodology to nowcast private equity (PE) fund net asset values (NAVs) at a weekly frequency, improving upon traditional approaches that rely on infrequent and smoothed NAV reports. Using fund-level cash flows, reported NAVs, and comparable public asset returns, the model jointly estimates fund-specific risk-return profiles, reporting quality, and smoothing intensity, enabling more accurate and timely valuation of illiquid PE assets. Empirical analysis on thousands of buyout and venture funds shows that the SSM approach significantly reduces nowcasting errors relative to naïve methods, reveals lower average systematic risk (beta) than prior literature, and captures meaningful heterogeneity and time variation in fund risk and reporting behavior. Applications include improved asset allocation decisions during market stress periods, such as the 2008 financial crisis, and construction of PE return indices that better reflect underlying fund dynamics without the autocorrelation biases typical of appraisal-based indices.