Glossary term
NAV Lending
NAV lending is fund-level borrowing secured by the net asset value of a private fund’s existing portfolio investments.
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What Is NAV Lending?
NAV lending is fund-level borrowing secured by the net asset value of a private fund's existing portfolio investments. The borrower is usually a private equity, private credit, or other closed-end investment fund, and the collateral is tied to the value of assets the fund already owns.
The structure differs from a subscription line, which is typically backed by investors' uncalled capital commitments. NAV lending usually appears later in a fund's life, after capital has been deployed and the fund has a portfolio with measurable value.
Key Takeaways
- NAV lending uses a fund's existing portfolio value as the basis for a loan.
- It can provide liquidity for follow-on investments, portfolio support, expenses, refinancing, or distributions.
- The loan adds leverage at the fund level, which can improve flexibility but also increase risk.
- Limited partners usually care about disclosure, use of proceeds, lender rights, valuation assumptions, and downside scenarios.
How NAV Facilities Work
A lender evaluates the fund's portfolio, diversification, valuations, exit prospects, debt at portfolio companies, and governing documents. The loan amount is usually limited by a loan-to-value framework. If portfolio values fall, the fund may need to repay, post additional support, limit distributions, or comply with other covenants.
NAV facilities can be secured by partnership interests, distribution rights, account pledges, or other fund-level collateral. The exact structure depends on the fund documents, lender requirements, portfolio type, and jurisdiction.
Common Uses
Use | Financial Purpose |
|---|---|
Follow-on capital | Support existing portfolio companies without calling more capital. |
Liquidity bridge | Manage timing gaps before asset sales or distributions. |
Defensive capital | Protect portfolio value during stress or refinancing pressure. |
Investor distributions | Return cash before exits, which can be controversial if debt funds the payout. |
Disclosure and Risk
NAV lending can be useful when it gives a fund time or flexibility to protect value. It can also layer debt on top of already leveraged portfolio companies. That makes valuation discipline, covenant terms, maturity timing, and use of proceeds important.
The main risk is not the existence of the facility by itself. The risk is borrowing against portfolio values that later prove too optimistic, or using debt to manage optics rather than improve economic outcomes.
The Bottom Line
NAV lending is a private-fund financing tool that turns portfolio value into borrowing capacity. It can help a fund manage liquidity, but it also adds leverage and makes transparency with limited partners especially important.