In response to demands from institutional investors for increased transparency with respect to hedge fund assets, and consistent with the renewed, post-crisis emphasis on liquidity, certain hedge fund managers are taking a novel approach to the presentation and use of net asset value (NAV).  See “Rolling Lock-Up Periods Enable Hedge Fund Managers to Pursue Less Liquid Strategies While Managing Investors’ Liquidity Expectations,” Hedge Fund Law Report, Vol. 3, No. 1 (Jan. 6, 2010).  Generally, the NAV of a hedge fund is its assets less its liabilities divided by the number of shares or units outstanding.  For example, if a hedge fund has $100 million in assets, $10 million in liabilities and one million shares outstanding, its NAV is $90.  NAV is used, among other things, to measure performance, calculate fees, determine the number of shares an investor will get for a certain amount of cash upon subscription or determine the amount of cash an investor will get for a certain number of shares upon redemption.  The new method – known as 3WayNAV – reflects a recognition that many of the assets held by hedge funds do not have a single value.  Rather, such assets, in particular the less liquid ones, have a range of potential values, including what a buyer would pay for the assets today (the bid price), what the fund would be willing to sell the assets for today (the ask or offer price) and the average of the bid and ask prices (the mid or average price).  See “How Can Hedge Fund of Funds Managers Manage a ‘Liquidity Mismatch’ Between Their Funds and Underlying Hedge Funds?,” Hedge Fund Law Report, Vol. 2, No. 40 (Oct. 7, 2009).  Under the 3WayNAV approach, the party that calculates the hedge fund’s NAV (usually the fund administrator or manager) measures NAV based on the bid, ask and average (or bid, offer and mid) prices of assets in the hedge fund’s portfolio.  Such a calculation offers investors significantly more insight into the current realizable value of a hedge fund portfolio than traditional approaches to calculating NAV.  In short, it enables investors to “discount” NAV by standardized measures of liquidity.  (Of course, if the fund does not offer investors actual liquidity, e.g., redemption rights, corresponding to their information rights, query what real purpose would be served for current investors by offering greater insight into portfolio liquidity.)  This article explores the new concept of 3WayNAV, detailing: how NAV traditionally has been defined and used; how NAV has been calculated in the context of illiquid assets; the definition of 3WayNAV, and how it differs from traditional NAV; disclosures required or recommended for funds that employ 3WayNAV; real-world examples of funds using 3WayNAV; types of funds that can use 3WayNAV; benefits of 3WayNAV; and burdens of 3WayNAV.