A credit facility secured against a fund's net asset value, providing liquidity for follow-on investments, capital calls, or distributions without requiring immediate asset sales or new equity fundraising.

A liquidity and leverage signal—NAV facilities reveal GP capital management sophistication, portfolio liquidity constraints, and fund performance pressure, with implications for distribution timing and financial engineering risk.

Expanded Definition

NAV facilities (also called "NAV loans" or "fund-level credit facilities") are debt instruments that allow GPs to borrow against the aggregate value of portfolio holdings. Unlike traditional subscription lines (which borrow against uncalled capital commitments), NAV facilities borrow against existing investments.

Facility uses: Bridge to exits (finance distributions while waiting for asset sales to close), follow-on investments (fund add-on acquisitions or growth capital without new capital calls), return timing (accelerate LP distributions to improve DPI before fundraising), and portfolio management (provide flexibility during market dislocations or delayed exits). Facilities are typically sized at 10-25% of NAV with 1-3 year terms.

Signals & Evidence

NAV facility quality indicators:

Purpose clarity: Used for legitimate portfolio management (follow-ons, bridge to exits) vs masking underperformance
Leverage ratio: Conservative sizing (10-20% of NAV) vs aggressive (25%+ raises risk)
Repayment source: Clear exit timeline for asset sales to repay facility
LP disclosure: Transparent communication about facility use and terms
Lender quality: Institutional lenders (not fringe capital) signals creditworthiness

Decision Framework

Usage legitimacy: Is facility funding genuine portfolio needs, or engineering distributions to mask weak DPI?
Leverage risk: Is facility sized conservatively relative to liquid portfolio assets?
Exit visibility: Are near-term exits likely to repay facility, or does it create refinancing risk?

Common Misconceptions

"NAV facilities = financial distress" → Facilities are standard portfolio management tools; distress signals come from overleveraging or lack of repayment visibility. "All leverage is bad" → Conservative use for follow-ons or bridging exits is sound capital management. "NAV facilities always delay exits" → Often used to bridge pending exits, not avoid them.

Key Takeaways

NAV facilities provide liquidity by borrowing against portfolio NAV, enabling follow-ons or distributions without immediate asset sales
Facility quality depends on sizing (10-25% of NAV), purpose clarity, and repayment visibility
LPs assess NAV facilities based on usage legitimacy, leverage risk, and whether they mask performance vs support genuine portfolio needs

NAV Facility