Richard Wheelahan, co-founder of Fund Finance Partners, explains how the credit instrument works.

Explain the difference between NAV and other types of loans.

The classic loan is the subscription or capital call credit facility. Those loans provide the fund with an advance rate based upon the fund’s investors’ uncalled capital commitments — not to the fund’s investments. NAV loans, on the other hand, don’t look to investor capital commitments for repayment, but rather to the total value of and cash flows generated by the fund’s investments. NAV loans to private equity funds are generally more bespoke than other forms of portfolio-level financing —  such as asset-based loans to private credit funds — due to the variety of private equity portfolio characteristics.

What are the main risks associated with NAV financing for borrowers, and how do lenders manage that risk?

The main risks borrowers face are manag