The "Ring-Fence" Reality: Why GPs Can’t Just Pool Funds & SPV

For General Partners (GPs) managing multiple vintages or strategies, the logic of leverage seems simple: bigger is better. A master NAV facility secured against a GP’s entire $2 billion platform would theoretically be far cheaper and more flexible than four separate $500 million facilities. Lenders love diversification; a loan backed by 50 portfolio companies across diverse vintages carries significantly less risk than a loan backed by 10 companies in a single fund. Consequently, a cross-collateralized "super-facility" would command tighter spreads, higher advance rates, and simpler administration.

However, in practice, this efficiency is nearly impossible to achieve. The barrier is not financial, but structural and legal: the "ring-fencing" of liabilities required to protect Limited Partners (LPs).

The Core Conflict: Different LPs, Different Risks

The fundamental issue is that "Fund IV" and "Fund V" are separate legal entities with distinct investor bases. While there may be overlap, the LP roster is rarely identical.

If a GP were to cross-collateralize—pledging the assets of Fund IV to support a loan shared with Fund V—they are effectively asking the investors in Fund IV to underwrite the performance of Fund V. If Fund V’s portfolio collapses and triggers a default, the lender could theoretically seize assets from Fund IV to make up the shortfall.

For an LP in Fund IV with no exposure to Fund V, this constitutes a breach of the fund's basic promise. They committed capital to a specific strategy and vintage, rather than to a commingled pool of the GP’s broader platform risks. This creates an insurmountable conflict of interest. A GP has a fiduciary duty to act in the best interest of each fund individually. exposing Fund A’s assets to Fund B’s liabilities strictly violates this duty.

Bifurcated Financing

This reality forces GPs into a less efficient financing structure. Instead of one massive, low-cost facility, they must negotiate separate NAV facilities for each fund. Each loan is smaller, less diversified, and therefore priced higher by lenders who must underwrite the concentrated risk of a single vintage.

While modern fund finance is evolving with solutions like "umbrella" facilities—which legally segregate liabilities while offering some administrative streamlining—the "Holy Grail" of true cross-collateralization remains out of reach. Until LPs are willing to accept cross-fund liability (highly unlikely), GPs must accept that financing efficiency will always take a backseat to fiduciary protection.