NAV Facility within a Continuation Vehicle (CV)

• Fund managers can apply leverage to the structure by using a continuation vehicle loan. With this financing, GPs can unlock new opportunities to enhance value for investors. By investing the capital at a cost of equity but borrowing at a lower (debt-like) cost of capital, GPs can obtain better returns while maintaining a manageable risk profile, especially if the assets are already generating stable cash flow.  

  
  

• To illustrate our argument, we present a case study of how a fund can utilise CV loans to finance the purchase of a new vehicle. Consider a VC firm that has decided to create a $200m CV to hold four of the portfolio companies from its first fund. The total value of the CV’s assets is $200m. 

  
  

• To carry out the transaction, the fund is exploring the use of a multi-asset continuation vehicle loan of $50m as a substitute for some of the additional equity. This would enable them to achieve better returns by investing the capital at the cost of equity but borrowing at a lower cost of capital.  

  
  

• With a few conservative base-case assumptions (contact Nodem for more details), the CV’s overall expected return (unlevered) will be 2.50x gross MOIC. However, with the incorporation of the loan, the gross MOIC increases to 2.83x, materialising the enhanced returns of the additional financing. 

  
  

• The loan plugs a gap in the CV fundraising and enhances returns.

Can NAV lending be an alternative to a Continuation Vehicle (CV)?

• For funds with seeded portfolios and short-term capital needs, NAV lending can be a preferable alternative to a continuation vehicle. It provides financing without the complex structuring and long timelines that continuation funds require.

  
  

• This approach is particularly advantageous when the fund requires immediate capital for follow-on investments, operational needs or taking advantage of urgent opportunities.  Additionally, NAV lending provides an efficient financing mechanism, as it allows existing fund investors to continue capitalising on the growth trajectory of the fund’s assets and avoids the conflict of interest that arises from selling an asset from one vehicle and buying it from another managed by the same GP.  

Conclusion

The market is experiencing a surge in demand for continuation vehicles (CVs). However, a successful CV requires a clear path to long-term value creation and a reasonable entry price. Given that successfully raising a CV remains a significant hurdle for many GPs, NAV financing offers a more practical alternative for supporting asset growth, especially when the conditions for a CV are not perfectly met. For CVs that do launch, fund finance tools like multi-asset loans can then be deployed to enhance returns.