Major institutional investors, including pension funds and sovereign wealth vehicles, are increasingly adopting net asset value (NAV) loans as a strategic solution to navigate the current liquidity squeeze in private markets.

The surge in demand for NAV loans comes as private equity distributions have dropped to roughly half their historical average, leaving investors with a record $3tn in unsold assets. Rather than selling stakes at a discount on the secondary market, investors are leveraging their fund positions to raise capital through NAV financing — a move widely seen as a smart balance sheet tool.

“It’s a liquidity management tool that not everybody is using, but the largest, more sophisticated limited partners are using to help manage their balance sheet,” said one lender involved in the space.

Once primarily a financing mechanism for private equity sponsors, NAV loans are now being adopted by their limited partners — including family offices and endowments — as a way to preserve long-term value while maintaining financial flexibility. Loans typically span four to five years, with loan-to-value ratios around 20%, making them attractive to private credit and insurance-backed lenders.

Leading providers in this space include 17Capital, Ares Management, and Carlyle, all of whom have seen increased deal activity. While the largest NAV loans so far have reached up to $800m, sources familiar with current deals expect upcoming transactions to surpass $1bn.

As more investors seek to manage liquidity without sacrificing long-term returns, NAV loans are proving to be a valuable, forward-looking solution for a maturing private equity ecosystem.

Source: Financial Times