Kasper
Welcome to Balentic Edge – the podcast where private markets meet insight. I’m Kasper, and today we’re unlocking one of the most talked-about tools in fund finance: NAV loans.

They’ve gone from niche to mainstream, reshaping how liquidity, value creation, and alignment are managed in private equity. But with that evolution comes risk, complexity, and a whole new set of questions for GPs and LPs.

Joining me is Alex, a partner at a private capital advisory firm and someone who’s been on the front lines of NAV financing for years. Alex, great to have you with us.

Alex
Thanks Kasper – always a pleasure. And NAV loans are definitely having a moment. They’ve quietly become a $100 billion market, with estimates suggesting we could be looking at $600 to $700 billion by 2030.

Kasper
Let’s start with how NAV loans actually work. What’s the core structure?

Alex
At its simplest, a NAV loan is a fund-level facility secured against the value of the portfolio – not future LP commitments like subscription lines, but the actual underlying investments. Lenders typically offer 5% to 30% of NAV in the form of debt, usually senior-ranking, and repayment depends on cash flows from exits or recaps.

Kasper
So it’s non-dilutive capital, but it’s also layered on top of portfolio company debt?

Alex
Exactly. That’s where things get tricky. NAV lenders rank above LPs but below company-level debt. So there’s a structural subordination that creates what many call a “leverage-on-leverage” risk.

Kasper
And when do these loans typically get used?

Alex
They come into play mid-to-late fund life. When dry powder is gone and GPs need capital – for add-ons, bridge financing, or to manage distributions. This is especially relevant when exit markets are frozen.

Kasper
We’ve seen that play out over the past 18 months. What’s driving the rapid growth?

Alex
Several things. Tough exit conditions, longer hold periods, and the increasing need for GP liquidity. NAV loans give GPs more flexibility: to hold trophy assets, fund M&A, or provide liquidity to LPs without a forced sale.

Kasper
Let’s talk risks – what do LPs need to watch?

Alex
Top of the list: cross-collateralisation. NAV loans are often backed by the entire portfolio. If one asset blows up and triggers a covenant breach, it can jeopardize the whole fund. Add to that valuation sensitivity, complexity, and the potential for GP misalignment.

Kasper
You mean using NAV loans to accelerate carry?

Alex
Exactly. Or to prop up underperformers. That’s why LPs are demanding more transparency – rationale, use of proceeds, terms – and are leaning on LPAC governance and LPA language to rein it in.

Kasper
So what’s the LP playbook here?

Alex
It starts with due diligence: asking the right questions about why the loan is needed, how it aligns with strategy, and what protections are in place. And then it’s about governance – clear rights, reporting, and peer coordination.

Kasper
Let’s wrap up with outlook. Is NAV financing here to stay?

Alex
Absolutely. The fundamentals – liquidity needs, mature portfolios, institutional lender appetite – all point to growth. But scrutiny will rise. This isn’t free capital. It’s a powerful tool, but it must be used with discipline and alignment.

Kasper
Well said. Thanks Alex – insightful as always. And to our listeners: if you’re a GP or LP navigating NAV loans, check out our blog series on Balentic.com, including our breakdown of risks, structures, and red flags.

Until next time – stay illiquid.