The slowdown in exits and the “higher for longer” interest-rate environment since 2025 have forced general partners to rethink how they fund operations and distributions. NAV-based lending borrowing secured by the net asset value of a fund’s investments has become one of the fastest-growing parts of the fund-finance market.
It lets managers unlock liquidity from mature assets while preserving upside, a critical capability when IPO windows are shut and strategic buyers are cautious. For the private equity industry, this is no longer a niche solution.
Global NAV loan volumes are estimated in the tens of billions annually, with private credit providers and banks racing to offer bespoke facilities. Understanding how these loans work, their risks, and their uses is now a core skill for any private equity investor or limited partner evaluating fund leverage.
Key Takeaways
- NAV-based lending unlocks liquidity without forced exits, allowing private equity funds to borrow against the net asset value of their portfolio companies and preserve upside in long-term holdings.
- The NAV financing market is rapidly expanding, with global volumes already exceeding $100 billion and projections to double by 2026, driven by slower exits, higher interest rates, and LP demand for steady distributions.
- NAV loans differ from subscription lines by being secured against portfolio assets instead of LP commitments, making them especially useful in mid-to-late fund life stages.
- Benefits include flexibility for GPs and stability for LPs, as loans can fund growth, support acquisitions, cover fund obligations, and maintain predictable investor payouts during liquidity droughts.
- Risks remain significant, including valuation volatility, leverage mismatches, and potential LP misalignment, underscoring the need for transparent reporting, disciplined use of proceeds, and regulatory compliance.
Defining NAV-Based Lending
NAV-based lending sits at the intersection of fund finance and alternative credit solutions. To understand how it works, we need to define NAV itself, explain how lending against NAV differs from other facilities, and highlight the key features that make it unique.
What NAV Means in Private Equity
In the private equity industry, NAV (Net Asset Value) represents the net worth of a fund. It’s not just an accounting figure, it’s the foundation for private equity firms in portfolio monitoring, investor reporting, and fund financing amid emerging trends in longer holding periods and tighter exit markets. NAV is calculated as:
Accurate NAV is critical because it directly determines borrowing capacity. Market performance feeds into this calculation.
According to McKinsey’s 2024 Global Private Markets Review, closed-end real estate funds posted a pooled net IRR of −3.5% in the first nine months of 2023 their first loss since the global financial crisis while hospitality rebounded with a 10.3% return.
These swings in asset performance illustrate why NAV must be tracked rigorously, as even sector-specific downturns can shrink a fund’s collateral base and limit financing options.
How NAV-Based Lending Works
Unlike subscription lines secured by Limited Partners (LP) commitments, NAV loans are collateralized by the value of portfolio companies themselves. This makes them especially relevant in a fund’s middle or later years, when most capital has already been deployed.
The key mechanics include:
- Borrowing base: typically 20–30% of NAV.
- Collateral: diversified holdings, subject to concentration limits.
- Repayment sources: portfolio exits, refinancings, continuation funds, or cash sweeps.
Because repayment depends on future portfolio realizations, lenders scrutinize asset quality and diversification carefully.
Key Features of NAV Lending
What sets NAV facilities apart is their bespoke nature. Typical features include:
- Collateral tied to portfolio assets, not LP commitments lenders assess the quality and diversification of the underlying companies, since these directly secure repayment.
- Loan terms structured to align with remaining fund life (2–5 years) maturities are tailored so debt runs off before the final portfolio exits.
- NAV coverage tests and diversification covenants rating agencies such as S&P require funds to calculate a marked-to-market NAV at least weekly for certain structures, alongside diversification and pricing safeguards.
- Repayment linked directly to portfolio performance facilities are repaid from exits, refinancings, or dividend flows, creating strong alignment with fund outcome
Together, these features make NAV lending a flexible but complex tool in the private equity landscape.
Why NAV-Based Lending Matters in Private Equity Fund
NAV-based lending has surged because it solves real-world problems in today’s market. As exits slow and equity markets remain volatile, General Partners (GP) need liquidity to sustain funds and LPs want predictable distributions. NAV loans bridge the gap.
Liquidity in a Challenging Market
Traditional routes like IPOs or trade sales slowed dramatically in 2025. NAV loans provide interim liquidity without forcing premature exits.
For example, a $1.5B buyout fund with a NAV of $1B could secure a $250M facility, allowing it to return capital to LPs while holding assets for better exit conditions. This keeps LP confidence intact and protects long-term value creation.
Flexibility for GPs
For fund managers, NAV loans are not just about payouts. They also:
- Finance growth equity rounds for portfolio companies.
- Support bolt-on acquisitions to strengthen platforms.
- Cover GP commitments or management fees without LP recalls.
This flexibility allows GPs to sustain strategy execution even during liquidity droughts.
Benefits for LPs
From the LP’s perspective, NAV lending:
- Provides smoother cash flows.
- Reduces the risk of “fire sales” that hurt valuations.
- Aligns GP incentives with long-term value creation.
Ultimately, NAV loans reinforce LP confidence that managers can weather downturns without compromising returns.
How NAV Financing Works in Practice
To appreciate NAV lending’s mechanics, it helps to break it down into four areas; how facilities are structured, the importance of valuations, who provides the capital, and the scenarios where GPs actually deploy it.
Collateral & Facility Structure
NAV loans are secured by diversified fund assets, with strict LTV and covenant requirements.
These structures ensure loans remain sustainable even under market stress.
Valuation Sensitivity
Because borrowing capacity depends on NAV, any markdown can trigger prepayment or covenant breaches. A 15% decline in NAV, for example, may reduce borrowing headroom significantly.
That’s why robust, transparent private equity valuation practices often supported by independent appraisers and monitoring tools are critical.
Sources of Capital
The NAV lending market is supplied by both banks and private credit funds:
- Banks: conservative LTVs, lower pricing, tighter covenants.
- Private credit lenders: higher LTVs, more flexible terms, higher spreads.
This dual supply base has fueled growth and given GPs more choice in structuring facilities.
Deployment Scenarios
NAV loans are versatile. Common use cases include:
- Liquidity to LPs: distributions during slow exit cycles.
- Growth capital: funding expansions within portfolio companies.
- Add-on acquisitions: bolt-ons to create value in platforms.
- Fund obligations: covering GP commitments and expenses.
Each scenario shows why NAV lending is becoming a mainstream tool in the private equity deal ecosystem.
Risks & Challenges
While NAV-based lending has clear benefits, it is not without risks. For GPs, LPs, and lenders, the downside lies in its reliance on portfolio valuations, the potential to over-leverage funds, and the scrutiny it invites from regulators and investors.
Valuation Volatility
NAV facilities are directly tied to portfolio valuation. A sudden downturn in the equity markets or markdowns in specific holdings can shrink the borrowing base and even trigger covenant breaches.
- NAV markdowns: a 10–20% decline can force immediate repayment or reduce access to credit.
- Sector-specific shocks: concentration in cyclical sectors increases risk exposure.
- Market comparables: when public peers trade down, private marks may follow, reducing NAV collateral.
For this reason, lenders demand robust valuation processes, often with external validation. Funds using NAV loans must invest in reliable monitoring tools to track real-time performance and stress-test scenarios.
Leverage & Liquidity Mismatch
By design, NAV loans add leverage to a fund. While this can enhance flexibility, it also increases the risk of mismatches between liquidity needs and repayment sources.
If poorly managed, NAV facilities can shift from a liquidity solution to a liability, eroding portfolio performance instead of supporting it.
LP Alignment Concerns
Limited partners often worry that NAV loans are a form of “financial engineering” that masks underperformance. Concerns include:
- Reduced transparency if facilities are not disclosed clearly
- Risk that GPs use proceeds for fees instead of value creation
- Misalignment if loans prioritize short-term liquidity over long-term returns
To maintain trust, GPs must communicate openly with LPs, explain use of proceeds, and demonstrate how NAV lending fits within their private equity investment strategy.
Regulatory & Disclosure Risks
As NAV lending volumes rise, regulators are watching closely. Increased fund leverage and opaque disclosures may invite stricter oversight. Emerging rules may require:
- Detailed disclosure of NAV facilities in quarterly and annual reports
- Stress testing of collateral quality
- Limits on leverage in certain fund structures
GPs that stay ahead of regulation and adopt best practices in disclosure will have an advantage in navigating this scrutiny.
Comparison with Other Financing Tools
NAV-based lending doesn’t exist in a vacuum. It is one of several liquidity solutions available to private equity managers. To understand its role in the broader private equity landscape, it’s important to compare it with subscription lines, GP-led secondaries, and hybrid facilities.
NAV Lending vs. Subscription Lines
Subscription credit facilities (also called “sub lines”) are the most common type of fund financing, but they serve a very different purpose than NAV loans.
Subscription lines solve short-term cash flow needs; NAV loans solve long-term liquidity challenges.
NAV Lending vs. GP-Led Secondaries
GP-led secondaries (e.g., continuation funds) are another way to generate liquidity when exits are slow. The main difference is that secondaries involve selling assets, while NAV loans preserve ownership.
NAV loan advantages:
- Preserve upside in portfolio companies.
- Faster to execute than secondaries.
- Less disruptive to LP relationships.
GP-led secondary advantages:
- No fund-level leverage added.
- Permanent solution (no repayment pressure).
- Often used for concentrated, high-value assets.
Both tools have their place, and many funds now combine them to maximize flexibility.
Hybrid Structures
Some lenders now offer hybrid facilities that combine features of both subscription lines and NAV loans. These facilities:
- Start as commitment-backed during early fund life.
- Transition to NAV-backed as the portfolio matures.
- Offer continuous liquidity throughout the fund cycle.
Hybrid tools reflect the evolving sophistication of fund finance and the growing demand for flexibility across the entire lifecycle of a private equity deal.
Market Trends & Growth (2025–2026 Outlook)
The momentum behind NAV lending in private equity reflects a fundamental shift in the financing market. As GPs face longer holding periods, fewer IPOs, and more cautious buyers, NAV financing has emerged as a mainstream tool for sustaining liquidity.
According to S&P Global, market participants expect that the $150 billion in NAV facilities currently in the market will double within the next two years.
Growth Drivers
The rise of NAV financing has been shaped by three key forces:
- Exit delays across private markets: IPOs and private equity secondary transactions slowed, leaving funds with mature but illiquid underlying portfolios.
- Pressure from institutional investors: LPs want smoother cash flows, pushing GPs to use NAV loans to maintain distributions.
- Higher interest rates: Traditional leverage became costlier, so private equity funds turned to more flexible NAV facilities.
Together, these dynamics explain why NAV lending in private equity has shifted from niche to necessity.
Role of Private Credit and NAV Lenders
The supply side of the NAV market has been transformed by the growth of private credit. While banks remain active, non-bank NAV lenders now dominate issuance, offering customized facilities against underlying assets that traditional lenders avoid.
This shift has broadened lending opportunities, making NAV loans accessible to a wider range of private equity firms and strategies.
Expansion Beyond Buyouts
Initially, NAV financing was primarily used by large buyout funds. Today, it can also be used in growth, infrastructure, and hybrid venture–PE strategies. Facilities against existing portfolios allow managers to:
- Support bolt-on acquisitions in existing portfolio companies.
- Refinance fund-level obligations.
- Extend fund lives to capture long-term value.
This expansion shows that NAV financing is no longer a last-resort option; it is now a standard tool across the private equity landscape.
Due Diligence & Underwriting
As NAV lending has emerged into the mainstream, the underwriting process has become more sophisticated, and AI is transforming due diligence by accelerating data review, anomaly detection, and covenant monitoring. For both NAV lenders and borrowers, careful analysis of the underlying portfolio ensures that facilities are sustainable and aligned with investor expectations.
Collateral Evaluation
The foundation of underwriting lies in assessing the underlying assets. Lenders look at:
- Diversification across sectors and geographies.
- Size and maturity of portfolio investments.
- Valuation methodologies and frequency of updates.
Funds with diversified, cash-generating existing portfolios typically access higher loan-to-value ratios than concentrated strategies.
Risk Assessment
Beyond valuations, lenders stress-test repayment ability under multiple scenarios. They assess:
- Exit timelines and refinancing capacity.
- Sensitivity of NAV to public market comparables.
- Cash-flow sustainability of existing portfolio companies.
By testing these factors, both lenders and private equity firms can ensure that repayment plans are realistic and transparent.
Ongoing Monitoring Tools
Modern NAV facilities require continuous oversight. Many institutional investors now expect funds to deploy technology-based monitoring tools that:
- Track NAV movements in real time.
- Measure compliance with covenants.
- Provide transparency across the underlying portfolio.
These tools reassure both LPs and NAV lenders that NAV financing remains secure throughout the facility’s life.
Benefits of NAV Lending
The growth of NAV lending in private equity reflects practical advantages for both funds and their investors. While risks exist, these benefits explain why the practice has expanded across the financing market and why NAV lending has emerged as a core strategy for GPs.
1. Liquidity Without Forced Exits
NAV financing enables a private equity fund to generate liquidity without prematurely selling underlying assets.
This allows managers to hold on to companies until conditions are more favorable, protecting long-term value.
2. Flexibility for Borrowers
Because NAV loans are secured by the underlying portfolio, they give private equity firms options beyond distributions. Facilities can also be used to:
- Fund bolt-on acquisitions in existing portfolio companies.
- Refinance fund-level expenses or obligations.
- Extend fund life to capture unrealized upside.
3. Stronger LP Relationships
Institutional investors benefit when funds maintain predictable distributions despite slower exit markets. By deploying NAV financing responsibly, managers build trust, reduce the risk of capital shortfalls, and show alignment with LP expectations.
4. Broader Lending Opportunities
The expansion of NAV lending has attracted a wide range of NAV lenders, from banks to private credit funds. This competition creates more tailored lending opportunities for funds while deepening capital access across the private equity landscape.
Exit & Repayment Strategies
No NAV loan is permanent. For a private equity fund, successful outcomes depend on clear repayment strategies aligned with the timing of portfolio investments, especially amid the rise of GP‑led secondaries that offer non-dilutive liquidity paths.
Sources of Repayment
Most NAV facilities are repaid through:
- Exit proceeds from existing portfolio companies.
- Refinancing via continuation vehicles or private equity secondary markets.
- Cash sweeps from portfolio dividends or refinancing of underlying assets.
These repayment channels ensure that NAV loans are temporary bridges rather than permanent liabilities.
Managing Fund Life Extensions
NAV loans allow funds to extend holding periods and avoid forced exits. However, mismatches can occur if loans mature before asset sales.
By aligning maturities with expected realizations, borrowers can protect distributions while still maximizing value from the underlying portfolio.
Avoiding Value Destruction
If mismanaged, NAV financing can erode long-term value. Risks include over-leverage, delays in distributions to institutional investors, and reduced flexibility at the end of the fund’s life.
Clear communication with LPs, realistic repayment planning, and disciplined use of proceeds help private equity firms use NAV facilities as a value-preserving tool rather than a burden.
Before You Go
NAV lending in private equity has evolved into one of the most important innovations in the financing market. Once viewed as a niche liquidity tool, it has scaled to support funds across strategies and now represents a market exceeding $100 billion in size.
For GPs, NAV loans provide interim liquidity, fund growth in existing portfolio companies, and extend holding periods without sacrificing upside in underlying assets. For LPs and institutional investors, NAV financing provides stability and predictability in volatile private markets.
As NAV lending in private equity continues to grow, it will reshape how private equity firms manage liquidity and risk creating new lending opportunities, strengthening the role of NAV lenders, and ensuring that NAV loans become a standard feature of the modern private equity fund toolkit.
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Whether you’re raising early-stage funding, preparing for growth capital, or exploring NAV financing to support an existing portfolio, the platform gives you direct access to curated profiles of private equity, venture capital, and angel investors all without a subscription. You can quickly see check sizes, investment focus, target industries, and verified contact details, all in one place.
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FAQs
What is NAV lending in private equity?
NAV lending is a form of fund finance where a private equity fund borrows against the net asset value of its underlying portfolio. The loan is secured by underlying assets rather than uncalled commitments, making it useful in the mid-to-late life of a fund.
Why has NAV financing become popular recently?
The rise of NAV is driven by slower exits, pressure from institutional investors for steady distributions, and the cost of traditional debt. NAV financing gives borrowers flexibility to manage liquidity while supporting existing portfolio companies.
Who provides NAV loans?
Banks, private credit funds, and specialist NAV lenders all operate in this market. Non-bank lenders dominate today’s financing market, offering tailored terms and new lending opportunities for private equity firms.
How do funds repay NAV loans?
Repayment typically comes from exit proceeds, refinancings, or cash sweeps from portfolio investments. NAV financing can also be used alongside private equity secondary transactions or continuation vehicles to refinance facilities and extend holding periods.
How large is the NAV financing market?
Analysts project the NAV lending market could exceed $100 billion by 2026. This growth reflects how NAV lending has emerged as a mainstream part of the private market, reshaping how GPs and LPs manage liquidity in existing portfolios.
