NAV Lines of Credit: What Private Equity LPs Need to Know Before the Next Draw

According to research from the Institutional Limited Partners Association (ILPA), the NAV financing market has grown to approximately $100 billion and is projected to reach $600 billion by 2030. If you are an LP in a private equity fund, there is a reasonable chance your GP is already using a NAV facility against your portfolio — and you may not know it.

What a NAV Line of Credit Actually Is

A NAV facility (also called a NAV loan or NAV line of credit) is a fund-level credit line secured not by LP commitments but by the equity value of the fund's portfolio companies. The lender underwrites the portfolio's net asset value, sets a loan-to-value ratio typically between 10% and 30%, and extends a facility that the GP can draw against.

Subscription lines — the credit facilities most LPs already know about : are secured against unfunded LP capital commitments. They are used primarily to bridge the timing between investment closes and capital calls. NAV facilities are different: they come later in a fund's life, usually in years 4 through 9 after capital has been deployed and portfolio companies are generating value. The loan is secured by the portfolio itself, not by LP obligations.

The primary use cases GPs cite: providing liquidity without selling assets before they are ready, making additional investments after the investment period closes, paying down fund-level management expenses, or returning capital to LPs while retaining portfolio exposure. All of those rationales are legitimate. Whether a specific NAV facility is being used for those purposes, or whether it is masking performance problems, is the question LPs should be asking.

The Market and Key Lenders

17Capital is the dominant specialist in NAV lending. The London-based firm has deployed more than $13 billion since its founding in 2008 and received a $1 billion strategic investment from Brookfield in 2024. In June 2025, 17Capital provided a $700 million NAV loan to Atlas Holdings, one of the largest single-fund NAV transactions on record. Crestline Investors raised a $1.7 billion dedicated NAV loan fund in 2025. Ares Management has been both a NAV lender and one of the more prolific researchers of the market, having pegged single-fund NAV loan volume alone at $50 billion in recent analysis.

Traditional banks participate selectively. The regulatory capital requirements for NAV loans are higher than for subscription lines, which reduces bank appetite relative to non-bank credit managers. The lender universe for NAV facilities is therefore dominated by private credit managers, not commercial banks.

LP Concerns: What ILPA Found

In July 2024, ILPA published detailed guidance on NAV facilities, updated in November 2024. The document is required reading for anyone allocating to private funds. Key findings: many older limited partnership agreements did not explicitly prohibit or disclose NAV borrowing because the instrument barely existed when those agreements were written. GPs operating under older LPAs may face no contractual barrier to taking on significant fund-level debt without explicit LP consent.

The specific concerns ILPA identified:

• Hidden use : SPV structures used to secure NAV loans can sidestep fund-level use caps written into older LPAs. A fund that appears unlevered at the portfolio level may carry meaningful debt at the holding company layer.
• Cost drag : NAV facility borrowing costs run roughly 12% all-in for mid-market funds, a significant hurdle that must be cleared before net LP returns are generated.
• DPI manipulation : GPs can use NAV facility proceeds to make distributions to LPs, boosting the distributions-to-paid-in-capital (DPI) ratio without actually selling assets. A fund reporting strong DPI growth in years 6-8 may be borrowing to create that appearance.
• Management fee inflation : some fee structures calculate management fees on invested capital including NAV debt, which inflates the fee base.

ILPA's updated guidance recommends that new LPAs require LPAC consent before a GP draws on a NAV facility, set hard use caps at the fund level, require standardized disclosures of any NAV borrowing including purpose, terms, and drawdown amounts, and mandate annual audited reports of NAV facility usage. Forty-three percent of lenders in ILPA's survey say they are already applying this guidance in new transactions, but it does not apply retroactively to existing funds.

The SEC Is Watching

The SEC listed private fund NAV debt as a 2025 examination priority under the Division of Examinations. Specifically, the agency flagged concerns about disclosure adequacy, conflicts of interest between GPs and NAV lenders, and whether LPs are being properly informed of fund-level use that reduces their effective equity cushion. Advisers registered with the SEC are required under the Investment Advisers Act to disclose material conflicts and to act in their clients' best interests. A GP that uses a NAV facility to manufacture DPI distributions while concealing declining portfolio value would face serious regulatory exposure.

For LPs doing due diligence on new fund commitments, the practical question is whether the fund's LPA contains explicit language governing NAV facilities. Ask for it. If the LPA is silent, ask the GP for their written policy on NAV borrowing, whether LPAC consent is required, and what their current outstanding NAV debt is across all funds they manage. The answers will tell you something about how they treat LP transparency in general.

When NAV Facilities Are Legitimate

Not every NAV facility is a performance cover-up. The instrument serves real purposes. A GP managing a portfolio company through a challenging capital markets environment may use NAV borrowing to bridge a delayed IPO without forcing a fire sale. A GP who has found an attractive follow-on investment after the investment period closes might use a NAV facility to fund it while preserving LP distributions.

The distinction between a legitimate use and a problematic one comes down to disclosure, purpose, and cost. An LP who knows a fund has a NAV facility, understands the terms, sees it disclosed in quarterly reports, and can evaluate whether the stated purpose makes sense is in a fundamentally different position than an LP who discovers fund-level debt only during a GP-led secondaries transaction or a capital call they did not expect.

What to Ask Before Signing an LPA

When committing to a new private equity fund, include four NAV-specific questions in your due diligence checklist. First, does the LPA explicitly prohibit NAV borrowing without LPAC consent? Second, if NAV borrowing is permitted, what is the maximum use cap expressed as a percentage of NAV? Third, how are distributions sourced : from asset sale proceeds, operating cash flow, or fund-level borrowing? Fourth, are there current or historical NAV facilities outstanding across the manager's other funds, and what were the terms and outcomes?

The ILPA guidance document includes model LPA language that sophisticated LPs are now incorporating into new subscription agreements. Reference it directly when negotiating new fund terms.

Frequently Asked Questions

Q: Are NAV facilities disclosed in a fund's audited financial statements?

They should be, but disclosure varies. GAAP requires disclosure of material debt obligations, so a significant NAV facility would appear in the notes to audited financials. However, smaller facilities or those structured through SPVs may be less visible. Always request the full audited financials including footnotes and ask the GP directly whether any fund-level or portfolio-level credit facilities exist that are not visible in the main body of the balance sheet.

Q: How is a NAV facility different from a subscription line?

A subscription line is secured by unfunded LP capital commitments : essentially the fund borrowing against promises LPs have already made. It is used early in a fund's life to bridge investment timing. A NAV facility is secured by portfolio company equity value. It arrives later, when the portfolio exists and has value, and poses different risks because it adds use on top of already-deployed capital.

Q: If a fund uses a NAV facility to pay distributions, does that affect my IRR?

Yes. IRR calculations are sensitive to the timing of cash flows. Early distributions boost IRR even if the total return is unchanged. A GP using a NAV facility to pay LPs early will show a higher IRR than a GP who waits for asset sales, assuming the same underlying portfolio performance. This is the DPI manipulation risk ILPA flagged. Experienced investors triangulate IRR against total value multiple (TVPI) and realized proceeds to avoid being misled by timing-inflated IRR figures.

Key Resources for LP Due Diligence on NAV Facilities

The ILPA's July 2024 NAV Facility Guidance is the definitive investor reference document. It includes model LPA language, disclosure templates, and a framework for evaluating whether a proposed NAV facility is in LP interests. The SEC's investor bulletin on private equity covers the disclosure expectations the agency has set for private fund advisers under the Investment Advisers Act. For understanding 17Capital's market dominance, their published research on NAV finance provides the most detailed market size and deal flow data available publicly. The Fund Finance Association's NAV lending resources track market development from the lender perspective.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.