Why should family offices and private market funds consider NAV lending, and where does it sit against the alternatives?
A NAV loan is a credit facility secured against the net asset value of a portfolio of illiquid holdings, fund interests, co-investments, direct positions or real estate, rather than against any single asset. For a family office, it turns a long-term private markets allocation into liquidity without a sale, a taxable disposal or any change to the underlying investments. The other route is a secondary sale. Jefferies put average 2025 pricing for LP portfolios at about 87% of NAV and funds over 10 years old nearer 73%; Campbell Lutyens measured a 13.6% discount on LP-led deals. Those prices are final. A loan is not free either: interest, fees, a cash sweep and enforcement risk if the portfolio falls. The honest comparison is a permanent discount against a temporary cost.
How are NAV facilities structured for family office LP portfolios compared with fund-level borrowers?
A fund-level facility is borrowed by the fund or a subsidiary it controls, and whether it may borrow, how subsidiary debt counts against the leverage cap and what approval is needed are questions the LPA answers. A family office borrows one level up. The eligible interests are usually moved into a clean, newly formed holding company with no other liabilities, and the lender takes a pledge over that company’s shares and over a collection account that distributions are routed into. The LPAs are not amended, but nor are they disapplied: the GP is usually asked for a side letter or acknowledgement covering the upstream pledge and the distribution routing. At Nodem Capital we write facilities of $10m to $100m and above, typically at or below 40% of eligible, independently assessed NAV for private equity collateral, with cash pay or PIK interest over two to seven years, in USD, EUR or GBP.
What should borrowers understand before taking a NAV facility, for example collateral, advance rates and borrowing base mechanics?
That the advance rate is applied to eligible NAV, not headline NAV, and that two tests govern the loan: the borrowing base, which sets availability, and the LTV covenant, which may use a different valuation date and cash treatment and carries different consequences. The borrowing base tests each interest for remaining commitments, liens, transferability, consent status and the age of the mark, and the answer is negotiated: a reserve, a haircut, a cap or an exclusion. Most later friction is valuation timing: GP marks arrive quarterly and late, the lender wants something current in a falling market, and good documents say which figure counts and when. Then read what a breach triggers, a sweep, a drawstop, trapped cash or mandatory prepayment, how long the cure runs and whether collateral can be added. The contrast with a daily-marked Lombard line is real, but the sequence is negotiated, not standard.
What are the recurring legal friction points in NAV deals, including cross-border ones, and how are they resolved in documentation?
LPA transfer and pledge restrictions. A pledge of holdco shares is not a transfer of the LP interest, but whether the LPA catches it turns on its wording on encumbrances, indirect transfers, control and enforcement, so every LPA and side letter in the pool is tested against that. Where a trigger applies, the GP’s approval should cover the grant, perfection and enforcement of the security and any transfer that follows; an acknowledgement is not a consent, and leaving a fund out of the borrowing base does not cure a prohibited pledge. GP responses take months and borrowers do not wait, so facilities are often built with a delayed draw, funding first against unrestricted interests and adding the rest as approvals arrive. Cross-border, the facility is commonly English law with local security, for instance a properly constituted Luxembourg pledge over holdco shares under the 2005 financial collateral law, which can allow out-of-court appropriation, but only on the agreed enforcement trigger and with a valuation mechanism written into the pledge.
How are family offices using NAV facilities alongside secondaries, Lombard loans and co-investment programmes?
Increasingly as a portfolio tool rather than an emergency one. Bridging capital calls while older funds are slow to distribute is the baseline case. The more interesting one is consolidation. When a family moves from several wealth managers to a single chief investment officer it inherits a scattered set of fund interests, co-investments and directs, and a facility sized against the combined portfolio gives the new CIO one liquidity budget to reshape it with, instead of selling pieces at whatever each will fetch. Many run it beside a Lombard line on the liquid book, one for private markets commitments and one for everything else. Unlike a GP, a family is also free to use proceeds outside the portfolio, for an operating business or a property, without a taxable disposal. A partial secondary sale still has its place where the need is permanent, and a disciplined lender will say so.
How is LP and regulatory scrutiny, including the ILPA guidance, changing the way facilities are structured?
ILPA’s 2024 guidance is written for fund-level NAV borrowing by private equity funds. It asks GPs to disclose the size, cost, security and purpose of a facility, to seek LPAC consent before implementation where the LPA does not expressly permit it, and to seek LPAC approval for any facility used to fund distributions whatever the LPA says. It is guidance, not a rule, and it does not bind a family office borrowing at arm’s length against its own holdings. It bites indirectly: GPs are more alert to upstream pledges, and the approval process above has become slower and more formal. In the EU, an LP holding vehicle’s debt will not normally be attributed to the underlying fund under AIFMD, but the vehicle’s own status matters. A structure pooling capital from several family branches under a defined investment policy can itself be an AIF, and the Article 6(3) controlled-structure look-through needs checking before the term sheet, not after.
Alex Branton is the chief investment officer of Nodem Capital, an FCA-authorised investment firm providing NAV loans and GP financing of $10m to $100m+ to family offices, fund managers and limited partners in the US, Europe, the Middle East and Asia. He previously worked at Cambridge Associates and Sturgeon Capital.
Nodem Capital is authorised and regulated by the Financial Conduct Authority. This interview is a sponsored feature, reflects the author's views as a practitioner and is not legal, tax or investment advice. Facility terms described are illustrative. A NAV facility adds leverage ahead of the borrower's returns, may restrict distributions through cash sweeps, and exposes pledged interests to enforcement on default. Contact: Alex Branton, [email protected]
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