NAV Facility
A NAV facility is fund-level financing in which lending capacity and repayment support are based primarily on the net asset value or expected cash flows of portfolio investments rather than solely on uncalled LP commitments.
NAV facilities borrow against the seasoned portfolio
A subscription line generally looks to uncalled LP commitments as a central source of repayment support.
A NAV facility shifts the focus toward the fund’s existing portfolio: the value, diversification and expected cash flows of the assets already owned.
That makes NAV financing particularly relevant to mature funds whose remaining uncalled commitments may be smaller even though substantial portfolio value remains.
Common uses are broader than short-term bridging
NAV facilities can be used for purposes such as:
- follow-on investments
- portfolio-company support
- refinancing existing obligations
- acquisition financing
- liquidity management
- distributions to LPs
The use of proceeds matters because borrowing to protect or enhance a portfolio company has a different economic rationale from borrowing primarily to accelerate a distribution.
ILPA’s 2024 NAV-based facilities guidance focuses on transparency, LP engagement, legal documentation and disclosure around these structures.[1][2]
A simplified example
Assume a mature private equity fund owns six companies with reported aggregate value of $600 million.
The fund has relatively little uncalled capital remaining.
A lender agrees to a $75 million NAV facility after applying its own eligibility tests, valuation haircuts and concentration limits to the portfolio.
The fund now has liquidity without immediately selling a company.
That flexibility comes with a new liability and financing cost at the fund level.
NAV financing can change the risk allocation
If the facility is secured by portfolio interests, distributions or related rights, poor performance across the portfolio can weaken the borrowing base.
Depending on the documents, that can lead to:
- mandatory repayments
- tighter covenants
- reduced borrowing availability
- restrictions on distributions
- asset-sale pressure
The financing therefore creates a layer of risk above the leverage that may already exist inside individual portfolio companies.
Borrowing to fund a distribution deserves special scrutiny
A debt-funded distribution gives LPs cash sooner, but the fund still owes the lender.
That can improve near-term DPI while leaving the economic burden inside the vehicle.
ILPA recommends heightened LP engagement around NAV facilities used for distributions and recommends standardized disclosure of rationale, key terms and conflicts.[2]
The cash receipt is real. The question is whether it came from asset realization or new borrowing.
NAV is not the lender’s only concern
A headline NAV number does not determine borrowing capacity by itself.
Lenders may consider:
- portfolio concentration
- asset quality
- expected exit timing
- underlying company leverage
- sector exposure
- historical valuation reliability
- diversification
- cash-flow visibility
A $500 million diversified portfolio can support financing differently from a $500 million portfolio dominated by one highly leveraged company.
Common mistakes
“A NAV facility is the same as a subscription line.”
No. The primary collateral and repayment support differ.
“A distribution funded with NAV debt is the same as an exit distribution.”
No. One monetizes an asset; the other introduces borrowing.
“NAV financing is automatically harmful.”
No. It can provide useful liquidity and portfolio support. Terms, purpose and governance determine much of the risk.
“The reported NAV equals the lender’s borrowing base.”
Usually not. Lenders can apply exclusions, advance rates and concentration limits.
Example
An investor evaluating NAV Facility should identify the stated calculation, valuation or governing-document convention before comparing the figure or structure across funds.
Professional note
NAV facilities should be analyzed as both financing and governance arrangements. Useful disclosure includes purpose, collateral, size, maturity, covenants, cost, borrowing-base methodology, LPAC involvement and the effect on distributions and performance metrics.
Related terms
- Limited Partner (LP)
A limited partner (LP) is an investor or other partner in a limited partnership whose rights, obligations, capital commitment and economic participation are governed by the partnership agreement and applicable law.
- General Partner (GP)
A general partner (GP) is the partner with management authority over a limited partnership, subject to the partnership agreement, applicable law and any duties or restrictions that apply.
- Unfunded Commitment
An unfunded commitment is the remaining portion of an investor’s contractual capital commitment to a private fund that has not yet been contributed and may still be subject to future capital calls under the fund documents.
- Net Asset Value (NAV)
Net Asset Value (NAV) is the value of a fund’s assets minus its liabilities at a specified measurement date. In private funds, NAV commonly represents the reported residual value of investments that have not yet been fully realized.
- Subscription Line of Credit
A subscription line of credit is a fund-level borrowing facility typically supported by the credit quality and uncalled capital commitments of the fund’s investors, allowing the fund to borrow before issuing corresponding capital calls.
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