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By: Scott Cogar, Robinson Bradshaw

Loans to private investment funds based on the net asset value of their respective portfolio investments (that is, total assets of such a fund less its liabilities) have become dramatically more popular in recent years, as have similar arrangements structured as senior equity rather than debt. NAV loans have existed for more than a decade, and their increased use coincides with growth in the private investment funds industry and related expansion in demand for capital solutions. This post provides background information on NAV loans, discusses key issues for consideration by fund managers in connection with utilizing NAV loans and highlights due diligence points for fund investors related to NAV financings.

Use Cases for NAV Financing

NAV financing is provided by banks and non-bank lenders and used by numerous varieties of closed-end funds, including real estate, buyout/private equity, credit, venture and infrastructure funds. Such funds typically have a set investment period, during which they make investments by drawing down investors' capital commitments. Most market participants are familiar with revolving subscription credit facilities for investment funds, in which a fund's right to call capital from its investors serves as collateral for the loan. Subscription credit facilities are often used to bridge capital calls, finance other operations and provide liquidity at the fund level early in an investment fund's life,......................

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