NAV Lending
NAV lending, or net asset value lending, is a form of private credit in which a lender extends a loan to a private equity fund or its holding company secured by and sized relative to the net asset value of the fund's portfolio of investments, providing the GP with capital for follow-on investments, portfolio company support, or distributions to LPs without requiring asset sales.
Traditional corporate lending extends credit against a company's own assets and cash flows. NAV lending extends this logic upward in the capital structure, treating the private equity fund itself — specifically, the portfolio of investments it holds — as the collateral base for a secured loan. The lender evaluates the quality, diversification, and current net asset value of the fund's holdings, applies a loan-to-value ratio typically ranging from 10 to 25 percent of NAV, and extends a revolving or term credit facility to the fund's borrowing entity.
GPs use NAV facilities for several purposes. The most straightforward is bridging distributions to LPs when the fund holds valuable but not-yet-exited assets — rather than selling a portfolio company at a suboptimal time to fund LP distributions, the GP borrows against portfolio value and distributes cash, repaying the facility when exits occur naturally. This improves the fund's DPI metric and satisfies LP expectations for cash returns without forcing premature exits.
NAV facilities are also used to fund follow-on investments in portfolio companies after the fund's investment period has closed, support portfolio companies facing liquidity stress, or finance tuck-in acquisitions at the platform company level. In each case, the flexibility provided by the facility enhances the GP's ability to manage the portfolio dynamically without the binary choice of selling assets or accepting suboptimal outcomes.
Critics of NAV lending raise several concerns. Borrowing against portfolio NAV increases overall fund leverage beyond what was disclosed to LPs at fund formation, potentially amplifying downside risk in scenarios where multiple portfolio companies deteriorate simultaneously. Unlike subscription line credit facilities secured by LP commitments, NAV facilities are secured by assets with market-correlated values that can decline precisely when the GP most needs liquidity — creating procyclical risk.
Some LPs have pushed back on GP use of NAV facilities, arguing that undisclosed leverage increases risk without commensurate LP consent. In response, many fund documents now include provisions requiring LP advisory committee consent for NAV facility drawdowns above specified thresholds, and some LPs negotiate explicit restrictions on NAV borrowing as a condition of their commitment.
The NAV lending market is served by a growing number of specialized lenders including 17Capital, Ares Management, Goldman Sachs Alternatives, and others, reflecting strong GP demand for flexible portfolio-level capital. Understanding NAV lending is increasingly important for institutional allocators who wish to assess the full leverage picture of their private equity portfolios beyond the headline leverage at individual portfolio companies.