GPs think NAV deals die in credit committee. They die at the LPAC.
Most managers brace for the credit conversation and underprepare for the one that actually decides the outcome. Here is what tends to go wrong when GPs approach a NAV facility, seen from the side of the table that has to underwrite it, and what a sound deal should look like for your fund.
By Alex Branton, Founder and CIO, Nodem Capital, a London-based NAV lender.
The story across private markets in 2026 is by now familiar. Exit timelines are stretching, distributions are slow, and funds are leaning harder on fund finance to bridge the gap. NAV lending sits in the middle of it, and at Nodem the demand is unmistakable: our origination flow has grown steadily, and the managers reaching us expect the pipeline to keep building. What is less settled is whether GPs understand the thing they are borrowing.
First, clear away the caricature. The popular image of a NAV loan is a manager borrowing against the fund to manufacture a distribution and flatter its DPI. That is not what the market mostly does, and it is doing it less each year. In our own deal flow, requests built primarily around generating DPI have steadily declined, while borrowing to fund follow-on and new investments now dominates the facilities we see and underwrite. The defensive, distribution-led deal still happens, but it is the exception. The dominant use of NAV lending in private equity is offensive. Managers borrow to double down on winners, finance bolt-ons, and extend a fund’s investment window, not to recycle paper gains back to LPs. The distribution-led deal is the one that draws the headlines, not the one that drives the volume.
The recurring mistake, then, is not that GPs use NAV facilities. It is that they misread what kind of capital a NAV loan is, and where the real negotiation happens. The loan is a bet on the manager’s own portfolio, made by someone who has looked at it harder than the manager would like. And the counterparty who can sink the deal is often not the lender. It is the LP. Here is what GPs get wrong, in roughly the order it costs them.
They think the decision is theirs. The LPAC has a vote.
Start here, because most of the recent damage has been governance, not credit. A GP treats the facility as a portfolio call to optimise on its own terms. In 2026 it is closer to a negotiation with investors that happens to involve a lender.
The ILPA guidelines published in July 2024 reset the baseline. Where the fund documents are silent on NAV financing, the expectation is now that the GP seeks LPAC consent before drawing, disclosing rationale, use of proceeds, size, structure and key terms. The scrutiny tightens in the minority of cases where proceeds fund distributions, for which consent is expected even when the documents already permit a facility. For the more common offensive draw the disclosure obligation still applies, and GPs who treat it as a courtesy rather than a checkbox fare best. This is no longer theoretical: we now see the guidance shaping live deals as a matter of routine.
The data tells you why this matters more than the credit work. When NAV processes collapse, lender capital is rarely the constraint; a credible manager can usually find the money. Deals die because the GP chose an asset sale instead, or because an LP objected to the specifics. The facility you lost was killed at your own advisory committee, by an investor who felt they were told too late. Run the LP conversation first, frame the loan around their concerns, and you remove the most common reason these deals fail.
They think the loan is against the fund. It is against the marks, at the LTV they choose.
A GP sees borrowing against a diversified, conservatively valued book. The lender sees borrowing against the GP’s own opinion of what that book is worth, and the structure rests on whether that opinion survives contact with a buyer. This is why a portfolio with no realisations, much of its value held at cost, and recent vintages is the hardest collateral to finance well, even when the headline NAV looks healthy. There is no record of turning paper value into cash, so a lender applying real haircuts is not being difficult; it is being accurate. The same logic governs sizing. Conventional private equity NAV facilities rarely exceed 25% loan-to-value, and the disciplined end sits well below that: a facility at fifteen percent leaves room to absorb a bad quarter, while one pushing the ceiling has spent its margin for error before anything has gone wrong. Every point of LTV is a point of patience surrendered. The GPs who negotiate well arrive knowing which of their marks they can defend, and draw accordingly.
They misread price, in both directions.
This is where the GP view and the reality we see in the market diverge most. Many GPs still carry a 2022 impression of NAV pricing, when base rates spiked and the all-in cost looked punitive. That impression is stale. Margins have compressed meaningfully over the last year, and most secured facilities we see now price within a 4 to 7 percent band over the base rate, with well-structured deals landing toward the lower end of it.
The more useful number is structural. Secured facilities, where the lender takes recourse to the underlying assets, price tighter. Recourse-light facilities, with security only over realisation cash flows and limited enforcement, price higher, but the gap we see is now modest, far narrower than most GPs assume, often little more than a point. That delta is the actual decision: pay up modestly for the limited-enforcement structure LPs tend to prefer, or take the cheaper secured route for a clean book at moderate LTV. It is also the one place the lender’s interests and the GP’s genuinely diverge. We align on avoiding default; we are across the table on margin. A GP who knows that bargains better than one told the relationship is purely collaborative.
They misjudge the relationship as adversarial, and the risk as one-sided.
The most expensive posture is treating the lender as a counterparty to be outmanoeuvred on terms. A NAV lender does not want to enforce: the collateral is a basket of minority stakes it cannot operate, cannot easily sell, and has no wish to own. The ILPA guidance reflects this, treating foreclosure as rare and expecting lenders to work with the GP to refinance or find another path. A well-built facility is structured around negotiation, with cure periods, waivers and extensions written in from the start.
That said, the risk is not all on the GP’s side. A facility cross-collateralised across a fund the GP cannot ring-fence can constrain exit timing the manager assumed was theirs. A lender who underwrites loosely against optimistic marks is not doing the GP a favour; they are building a problem that surfaces later for everyone. And a tool that lets managers hold rather than sell can quietly defer the price discovery that would validate the marks the loan was written against. None of that argues against NAV lending. It argues for a lender who holds the line at origination, because the discipline that looks like obstruction is what keeps the facility off the front page.
What getting it right looks like.
Used the way most of the market uses it, to back winners and fund new investment, a NAV loan extends the hold on a real asset, avoids a forced sale into a soft market, and gets repaid out of its own success. It is not the problem the outrage cycle wants it to be, and it is not the free money too many GPs assume it is. It is leverage against a portfolio, governed by your investors and underwritten by someone reading your marks more sceptically than you did. The managers who internalise that get a tool that buys them time. The ones who do not get a lesson in what patience costs.
