Marcus Emadi | Director at Turning Point Capital
CONTENTS
“In the past two years, NAV loans have become a go-to tool for general partners looking to fund M&A and unlock incremental value across their portfolios,” says Victor Boys. “We’re now seeing around 97% of NAV loans across the industry being used to increase investment capacity—supporting new platform acquisitions, follow-on investments, and value creation initiatives.”
This represents a substantial shift from earlier use cases where NAV financing was more often used to provide liquidity to LPs. According to Boys, only 3% of NAV loans in 2023 were allocated to investor distributions—a significant decrease from previous years. “This evolution reflects a maturing understanding of how NAV loans can be a strategic lever to deploy capital efficiently and drive IRR enhancement.”
Who’s Using NAV Finance?
NAV loans are being deployed across the full spectrum of private equity—from small-cap to mega-fund managers. However, it’s the largest and most sophisticated GPs that are leading adoption. “These firms are proactively leveraging NAV loans to transform solid performance into top-quartile results,” notes Boys.
Victor Boys supports this view. “Private equity is increasingly behaving more like real estate in its approach to capital structure optimisation. Just as we leverage assets in the property world, GPs are now doing the same with their portfolios to enhance capital efficiency and maximise returns.”
NAV lenders like Turning Point Capital are highly selective in their underwriting. “We partner with managers who have, on average, over $40 billion in AUM,” explains de Selancy. “We examine team quality, LP support, governance, and the health of portfolio company balance sheets. Our aim is to structure deals that protect investor capital while aligning with a fund’s value creation trajectory.”
Navigating a Tougher Macro Landscape
In an era marked by rising interest rates and prolonged holding periods, liquidity has become harder to come by. Boys notes that some funds are reallocating capital originally earmarked for buy-and-build strategies to cover increased interest expenses—a trend he views as sensible, so long as portfolio health remains intact.
“This environment will separate true value creators from those who simply benefitted from rising market tides. The best managers are turning to tools like NAV finance to continue investing and outperform through the cycle.”
A Complement to Continuation Vehicles
NAV loans don’t compete with continuation vehicles, says Boys—they complement them. “Think of it as a timeline: in years 1–4, you use subscription lines; in years 5–10, NAV finance becomes valuable for accelerating growth; and around year 12, continuation vehicles come into play to crystallize value and offer final exits.”
Each solution addresses a specific need during the fund lifecycle. NAV loans, in particular, fill the mid-stage financing gap—offering GPs a cost-effective alternative to raising new equity or triggering early exits.
Best Practice and Transparency with LPs
As NAV finance adoption grows, Boys emphasises the importance of transparency and strong governance frameworks. “We recommend that GPs and LPs agree on NAV loan thresholds during fund formation—say, up to 10% of NAV without LPAC approval, with anything higher requiring formal consent.”
He also urges GPs to report NAV financing outcomes clearly. “There are many compelling case studies where NAV loans have delivered meaningful alpha. GPs should be proud to highlight this value creation.”
Olympia Shabangu, Director of Capital Markets at Amicorp Capital (DIFC) Ltd, echoes this sentiment. “Transparency is essential in today’s market. GPs who clearly articulate the strategic use of NAV loans are better positioned to maintain LP trust while innovating with their fund structures.”
Market Dynamics: Supply, Pricing, and Structure
Despite increasing demand, the NAV lending space remains underserved. While banks, insurers, and some private credit funds occasionally participate, few are dedicated to the asset class. “Most banks operate in the sub-5% LTV space, where pricing is lower,” says de Selancy. “But in the 5–25% LTV range, where we operate, competition is still limited.”
Margins remain relatively stable, typically 550–750 basis points above base rates, and every deal is structured with bespoke waterfall arrangements to balance loan repayment with investor returns. “This customised approach makes the asset class attractive for both GPs and our investors.”
Why Investors Are Taking Notice
NAV finance is increasingly viewed as a compelling alternative to direct lending. Investors are drawn to its downside protection—low LTVs, solid covenants, and diversified exposures. “The ‘portfolio effect’ is key,” de Selancy explains. “Even if one company underperforms, it doesn’t necessarily impact the loan’s performance.”
From a sourcing perspective, NAV loans offer another advantage: inefficiency. “Over 80% of our loans are sourced directly,” de Selancy says. “We see over 200 opportunities annually but only invest in about 10. That selectivity helps us maintain a strong risk-return profile.”
Looking Ahead
The trajectory for NAV finance is clear. “Just as subscription lines and continuation vehicles became mainstream, NAV loans are on the same path,” predicts de Selancy. “Within 10 years, I expect over 90% of private equity managers will be using NAV finance in some capacity.”
A GP recently told de Selancy that their firm prides itself on being a ‘last-mover’—waiting until innovations are fully proven before adoption. “That GP said NAV finance is one of those rare tools they can’t ignore. It’s now essential.”
