NAV Financing: Fund-Level Leverage in a Changing Private Credit Market
- Axis Group Ventures
- Jan 5
- 4 min read
Image source: Unsplash
As private markets mature, the lines between debt, liquidity, and secondary capital are becoming increasingly blurred. NAV financing sits at this intersection. It helps funds turn illiquid assets into usable cash without requiring immediate asset sales.
In a tighter capital environment, fund liquidity is now a strategic concern. Slower distributions and tougher fundraising are forcing managers to use capital more efficiently. NAV financing has evolved into an important tool for managing liquidity and duration risk.
What Is NAV Financing?
Net Asset Value (“NAV”) financing is a type of fund-level credit facility where the loan is backed by the value of a private equity or alternative investment fund’s underlying portfolio. NAV facilities use the current value and cash flow profile of a fund’s holdings to determine borrowing capacity.
These structures are most common among mid- to late-life funds looking to access liquidity for portfolio support, follow-on investments, GP-led secondary transactions, or distributions to investors. Lenders typically advance 10% to 30% of NAV, depending on the diversification, quality, and visibility of the underlying assets. Of importance, advance rates may vary based on portfolio concentration, asset type, cash flow visibility, and structural protections.
From an institutional standpoint, NAV financing has become an important feature of today’s private credit landscape. It offers sponsors a flexible, non-dilutive source of capital—especially valuable when traditional fundraising slows or exit timelines extend. On the lender side, underwriting NAV facilities demands deep credit, PE, and portfolio analytics and valuation expertise, with risk managed through diversification thresholds, concentration limits, and regular NAV reporting.
As fundraising cycles lengthen and LP liquidity pressures persist, NAV financing is poised to continue expanding. It enables GPs to meet capital needs and optimize portfolio performance while bridging liquidity gaps without forcing premature asset sales.
Source: Mayer Brown, NAV Credit Facilities: The Spectrum of Collateral Structures (July 2024).
NAV Financing Features
Feature | NAV Financing |
Core Purpose | Provide liquidity without selling assets — a loan against portfolio NAV |
Structure | Debt instrument at the fund level |
Source of Capital | Lenders (banks, credit funds, specialty finance firms) |
Collateral / Basis | Backed by existing fund assets (NAV of portfolio) |
Use Cases | Bridge distributions, finance follow-ons, manage cash flow timing |
Impact on Leverage | Increases fund-level leverage |
Investor Implication | LPs stay invested; returns affected by borrowing cost and risk |
Key Risks / Mitigants | Valuation accuracy and loan covenants / Mitigants - Covenants, amortization, cash sweeps, diversification tests |
Macro Context
The growth of NAV loans reflects today’s tighter liquidity conditions, higher rates, slower fundraising, and longer exits. In this environment, fund-level debt has become a strategic response, not just a short-term fix.
The Ecosystem and Market Structure
Sample list of lenders: Blue Owl, 17Capital, Whitehorse Liquidity
Sample list of multi asset platforms: Ares, Apollo, Oaktree, Carlyle
Sample Secondary buyers: Coller, Lexington, HarbourVest, who often pair NAV loans with GP-led deals
Institutional investors: pensions, insurers, and sovereign funds backing NAV strategies
As the market grows, connections between lenders, GPs, and secondary buyers are becoming closer. NAV financing is building a new layer of capital that sits between primary fundraising and secondary liquidity. These overlapping roles mean that credit, equity, and liquidity are increasingly interdependent, making NAV financing both a stabilizer and a source of correlation risk.
Growth Drivers
Several structural and cyclical forces are propelling NAV financing’s rise.
Bigger market: Private credit has grown beyond $2 trillion, and larger funds need bigger liquidity options. This expansion has been accelerated by continued fundraising headwinds in traditional PE, pushing sponsors to seek alternative liquidity sources such as NAV loans and structured solutions.
Mismatch in timing: Loans pay down faster than fund lifespans, creating natural liquidity gaps. As exit volumes remain muted and distributions lag behind prior years, these timing mismatches are widening—especially among funds with delayed exits or slower recycling of capital.
More adoption: Pensions, insurers, and sovereign wealth funds are now backing NAV strategies. These institutional investors view NAV lending as a defensive yet flexible tool amid prolonged uncertainty, with broader adoption expected as managers normalize its use in portfolio management.
Shift in mindset: What was once niche is becoming standard practice in fund management. NAV financing has evolved from a crisis measure to a mainstream liquidity lever—integrated into long-term fund strategy, particularly for mature vehicles managing limited dry powder.
Market pressure: Higher interest rates and credit stress make flexible liquidity more valuable. With B2B and B2C sectors under pressure from tariff uncertainty and operating cost strain, sponsors are using NAV loans to stabilize valuations and bridge capital needs for non-core or slower-performing assets.
Additional catalyst: Ongoing challenges in PE fundraising and exit activity—Q2 2025 deal value and exits remain well below 2022 levels—are reinforcing demand for NAV lending as a bridge between delayed exits and future fundraising cycles.
Together, these drivers reflect how private markets are institutionalizing liquidity—turning a tactical tool into a permanent funding layer.
Closing Thought
NAV financing and secondaries are converging to create a new layer of private market liquidity. The advantages are evident—greater flexibility, capital efficiency, and portfolio stability—but so are the trade-offs: higher leverage, structural complexity, and tighter interdependence. The key question is not whether liquidity will exist, but how it will be structured.
Ultimately, NAV financing will test how private markets define liquidity itself, determining whether it serves as a stabilizing force or a new source of market stress.
Sources:
Disclosures & Disclaimers
This blog post is provided by Axis Group Ventures for informational and educational purposes only. It does not constitute investment, legal, accounting, or tax advice, and should not be relied upon as such. Nothing contained here should be interpreted as an offer to buy or sell any securities. Any actual offer or solicitation will be made exclusively through formal documentation provided by the relevant issuer or seller.
Axis Group Ventures is not a registered broker-dealer and does not execute, negotiate, or recommend the purchase or sale of securities. Any introductions or private-market support provided by Axis Group Ventures are conducted strictly in an advisory and consulting capacity. Readers should conduct their own due diligence and consult qualified professionals before making any financial decisions.
Investments in private securities involve significant risks, including the potential loss of the entire investment, and are typically illiquid. Past performance does not guarantee future results.
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