NAV Finance: Facility Mechanics, Lender Reporting and Controls

NAV finance is borrowing by a private fund secured against the value of its existing investments. Instead of relying on LPs' unfunded commitments, as a subscription line does, a NAV facility looks to the portfolio itself: the lender advances a percentage of the portfolio's net asset value and is repaid from cash flows and exits. Because the loan is sized and policed off valuations, NAV finance makes the fund's reporting and valuation process part of the credit agreement.

This guide covers how the facilities work, what lenders require, how they change the finance team's workload, and what LPs expect to be told.

How NAV facilities differ from subscription lines#

Most fund CFOs meet fund-level borrowing first through a subscription credit facility. The two products sit at opposite ends of a fund's life.

Hybrid facilities combine both collateral pools and are used by some funds across their life. Note that a facility's specific advance rates, pricing and tenor are negotiated case by case; avoid relying on generic market figures when modeling.

Common uses of proceeds#

NAV facilities are used for several purposes, and LPs view them very differently:

• Supporting the portfolio. Funding follow-on investments or add-on acquisitions after the fund has called most of its capital.
• Defensive liquidity. Shoring up a portfolio company or refinancing debt at the company level when exits are slow.
• Bridging an exit. Providing liquidity ahead of an expected realization.
• Funding distributions. Returning cash to LPs before underlying exits. This boosts DPI in the near term while adding leverage and interest cost that reduce the eventual net return. It is the most debated use, and many LPs expect to be consulted before it happens.

Key terms finance teams must manage#

Loan-to-value covenant#

LTV is generally calculated as outstanding debt ÷ eligible portfolio value. The agreement typically sets an initial maximum and one or more higher thresholds that trigger consequences: a requirement to sweep distributions to repay debt, a cure period to contribute cash or add collateral, and ultimately an event of default.

Eligibility and concentration#

Not every asset counts at full value. Lenders often exclude or haircut investments that are too large a share of the pool, in distressed situations, subject to transfer restrictions, or lacking recent valuations. The borrowing base is computed on eligible NAV, not reported NAV.

Valuation rights#

Lenders usually rely on the fund's own valuations but reserve rights to challenge them, request a third-party valuation, or apply their own haircuts when marks look stale or when a material event occurs.

Cash sweeps and structure#

Many facilities require some or all portfolio distributions to be applied to the loan, either always or once LTV crosses a threshold. Collateral is often held through a special purpose holding vehicle so the lender can take security over the equity of that entity rather than over each investment.

A worked LTV example#

Assume a hypothetical fund borrows $50M against a portfolio with eligible NAV of $400M. The facility has a 20% maximum LTV, a cash sweep at 25%, and a default trigger at 30%.

Two lessons follow. First, eligibility changes can move LTV faster than valuations do. Second, the fund can breach a covenant without selling anything, purely through quarterly marks. That is why the valuation calendar and the covenant calendar must be run together.

The reporting burden#

Once a NAV facility is in place, finance owns a recurring set of lender deliverables. A typical package includes:

1. Borrowing base certificate. Eligible NAV by asset, haircuts applied, resulting availability and LTV, usually quarterly and on each draw.
2. Valuation support. Quarterly marks with methodology and key inputs, often the same package prepared for the fund's valuation committee.
3. Financial statements. Quarterly unaudited and annual audited statements of the fund, and sometimes of the holding vehicle.
4. Portfolio company information. Financial summaries for collateral companies, subject to confidentiality restrictions.
5. Compliance certificates. Officer certification that covenants are met and no default exists.
6. Event notices. Prompt notice of material events: a portfolio company default, a significant write-down, a key person event or a change to the LPA.

Practical steps that reduce risk:

• Build a single covenant calendar. Every report, test date and notice period with an owner.
• Reconcile NAV across audiences. The NAV in the borrowing base certificate should tie to the NAV in LP reports and the general ledger, adjusted only for documented eligibility rules.
• Pre-compute stress cases. Know how far marks can fall, by asset, before each threshold is hit.
• Coordinate timing. If lender deliverables are due before LP reports, the valuations must be final earlier than the usual reporting cycle.

Valuation scrutiny#

Borrowing against NAV raises the stakes of every mark. A valuation that is too high overstates availability and invites lender challenge; one that is too low can trip a covenant. Both outcomes argue for a written, consistently applied process. A defensible approach is set out in a fund valuation policy and executed through a documented portfolio valuation cycle, with clear methodology, calibration to transaction prices, review by people independent of the deal team, and support retained for each mark.

LP considerations and disclosure#

LPs care about NAV finance because it adds leverage at the fund level, changes the timing of cash flows, and can affect performance metrics. Before entering into a facility, review:

• LPA authority. Whether the agreement permits borrowing secured by portfolio assets, any leverage or term limits, and permitted uses of proceeds.
• Advisory committee input. Whether consultation or consent is required, and whether it is wise even where not required.
• Fund performance reporting. Whether IRR and multiples are shown both with and without the effect of fund-level borrowing so LPs can see the impact.
• Distributions funded by debt. Clear labelling in distribution notices and investor reporting when a distribution is financed rather than realized.

ILPA has published guidance encouraging GPs to disclose NAV facilities clearly and to engage LPs on their use, and many institutional investors now ask about them in due diligence questionnaires.

On the regulatory side, the SEC's 2023 Private Fund Adviser Rules, which would have required certain disclosures in quarterly statements, were vacated by the Fifth Circuit in June 2024. Advisers' fiduciary duty and the antifraud provisions still apply to how borrowing is described to investors, and registered advisers report fund borrowings on Form ADV and, where applicable, Form PF. Confirm the specific disclosure and filing implications for your fund with counsel.

How Privatis helps#

Privatis keeps NAV, portfolio valuations and the fund general ledger in one system, so the figures in a borrowing base calculation can be tied back to the same marks and entries used for LP reporting. The compliance filings calendar tracks regulatory deadlines such as Form PF, DDQ responses can document facility terms consistently for LPs, and the audit trail records every valuation change.