NAV Lending Glossary: The Terms Family Offices and GPs Need to Know
By Alex Branton, Chief Investment Officer, Nodem Capital. Last reviewed October 2026.
A family office principal and a fund CFO can use the same word in the same meeting and mean different things by it. In NAV lending, “security” and “recourse” cause the most trouble. A good share of the confusion in early conversations is about vocabulary rather than the economics of a deal.
These are the terms we explain most often. The first three are the ones people mix up: NAV loans, fund finance and GP financing. After that come ten legal and documentation terms that appear in almost every NAV facility term sheet. Where a figure is given, it reflects Nodem’s own practice and is indicative only.
Quick reference
What is fund finance?
Fund finance is the collective term for lending to private funds, their investors and their managers. The main products are:
Subscription lines, also called capital call facilities. Short-term loans to a fund, secured on its investors’ uncalled commitments and used early in a fund’s life to smooth capital calls. Banks dominate this market and price it keenly.
NAV facilities. Loans secured on a portfolio that is already invested, used later in a fund’s life or by investors in funds.
Hybrid facilities. Loans secured on both uncalled commitments and existing investments, usually for funds in the middle of their investment period.
GP financing. Loans to the manager rather than the fund (see below).
Preferred equity. Capital that ranks behind any debt but ahead of the fund’s own investors, often used where a loan would breach the fund’s borrowing limits.
Strictly, a family office borrowing against its own fund interests is investor-level NAV lending rather than fund finance, because the borrower is an investor and not a fund. In practice the same lenders, law firms and documents cover both, so the terms are used loosely. Nodem provides NAV facilities and GP financing. It does not provide subscription lines, which banks can do more cheaply.
What is GP financing?
GP financing is lending to a private fund manager, its general partner entities or its individual partners, rather than to the fund it manages. The lender takes security over what the manager owns: its commitments to its own funds, its carried interest and, in some structures, management fee income.
Managers use it to fund their commitment to a new fund, which is often 1% to 5% of fund size and paid in cash as capital is called. Other common uses are buying out a retiring partner, funding management company working capital and acquiring another manager.
Because the loan sits with the manager, no debt is added to the fund and its investors carry no exposure to it. The fund documents still need reading, as many restrict pledges of GP interests or carry. Some banks offer GP financing only as part of a wider banking relationship, sometimes alongside a subscription line to the fund. Nodem’s GP financing is provided on a standalone basis.
Example. A manager raising a $500m fund with a 2% GP commitment needs $10m in cash over the investment period. A GP facility secured on its interests and carry in earlier funds can provide that without the partners selling assets or contributing personal cash.
Ten legal and documentation terms
These ten appear in almost every NAV facility term sheet. Between them they decide what the borrower is actually agreeing to.
Pledge
A pledge is security over an asset that the borrower continues to own. If the loan is not repaid, the lender can enforce the pledge, usually by taking control of the asset or selling it.
In NAV lending the pledge is normally over the shares of the vehicle that holds the investments, not over each fund interest. Nothing changes hands at fund level, although some fund documents treat a pledge of the holding vehicle as a transfer anyway (see transfer restrictions). Under English law the same arrangement is usually documented as a charge over shares. In the US it is a security interest, perfected by filing a UCC financing statement.
First lien
A first lien is security that ranks ahead of every other claim over the same asset, so its holder is repaid first from whatever enforcement raises. A second lien ranks behind it. Most NAV loans are first lien over the pledged holding vehicle.
Ranking at the top of a structure is not the whole picture. If a company or fund below the holding vehicle has its own borrowing, that lender is repaid from those assets before anything reaches the NAV lender. This is called structural subordination. Where a family already has bank debt in its structure, an intercreditor agreement records who ranks where.
PIK interest
PIK (payment in kind) interest is interest added to the loan balance instead of being paid in cash. It compounds, and is repaid with the principal when distributions arrive.
PIK suits portfolios that produce little or no regular income, which describes most private equity and venture holdings. The cost is that the balance grows, so LTV rises even if valuations stay flat. A $20m loan at 10% PIK, compounding annually, becomes $26.6m after three years. Some facilities offer a PIK toggle, letting the borrower choose each period whether to pay in cash or add the interest to the balance.
Loan to value (LTV)
Loan to value is the loan balance divided by the value of the collateral the lender recognises, expressed as a percentage. In NAV lending that value is eligible NAV, not the reported figure. A portfolio reported at $200m, with $150m eligible and a $30m loan, has an LTV of 20%.
Facilities set an opening LTV and a maximum LTV. Many also increase the cash sweep as LTV climbs between the two. Going above the maximum is an event of default unless the borrower cures it, usually by repaying part of the loan or adding collateral within a set period. Nodem lends up to 30% LTV, with higher ratios for real estate and diversified LP portfolios.
Cash sweep
A cash sweep requires some or all of the distributions from the pledged portfolio to be used to repay the loan. A 100% sweep sends every distribution to the lender until the loan is repaid. Others sweep a fixed percentage, often rising as LTV rises.
The sweep usually applies from the first day of a performing loan, not only after something goes wrong. Families should agree carve-outs before signing so they can still meet capital calls on unfunded commitments, tax bills and running costs.
Transfer restrictions and GP consent
Transfer restrictions are clauses in a fund’s limited partnership agreement (LPA) that stop an investor transferring or pledging its interest without the general partner’s consent.
Many LPAs are drafted widely enough that a pledge of the vehicle holding the interest, or a change in who controls it, also counts as a transfer. Before a NAV loan closes, counsel reviews each fund’s documents to see which interests can be pledged and which need consent. GPs often consent where the lender accepts that any transfer on enforcement will still need their approval. Interests that cannot be pledged are usually left out of eligible NAV. Across twenty funds, this review is often the longest part of the timetable.
Account control agreement
An account control agreement gives the lender rights over the bank account that receives fund distributions. It is signed by the borrower, the lender and the bank that holds the account.
The borrower normally runs the account as usual until a default, after which the lender can take control and block withdrawals. In the US this is a deposit account control agreement (DACA). In the UK and Europe the same result comes from an account charge with notice to the bank. Lenders may also ask fund managers to acknowledge new payment instructions so distributions land in the controlled account. Because a third-party bank must sign, these agreements are a common cause of delay.
Event of default
An event of default is a breach, defined in the facility agreement, that allows the lender to demand immediate repayment and, if needed, enforce its security. Demanding early repayment is called acceleration.
Common events of default are non-payment, an LTV breach not cured in time, insolvency, a change of control of the borrower and misrepresentation. Most carry a cure period, a set number of days to put the breach right before the lender can act. Borrowers should check that cure periods are long enough to sell an asset or wait for a distribution, and which events only apply above a materiality threshold.
Recourse
Recourse describes how far a lender can reach beyond the pledged collateral to recover what it is owed. A limited recourse loan can be recovered only from the pledged assets. A full recourse loan can be recovered from everything the borrower owns.
A guarantee extends recourse to another party, such as a parent company or a family member. Many NAV loans to family offices are limited recourse to the holding vehicle, sometimes with a guarantee from a parent entity. Personal guarantees are less common and tend to appear in smaller or more concentrated deals. Nodem offers recourse-light structures where transfer restrictions make a direct pledge difficult.
Other terms you will see
About the author
Alex Branton is Chief Investment Officer of Nodem Capital, an FCA-authorised NAV lender providing facilities of $10m to $100m+ to family offices, GPs and private markets investors. He previously advised family offices and institutional investors at Cambridge Associates and was a partner at Sturgeon Capital, a private equity and venture manager. He holds the CAIA charter. For a confidential conversation about a facility, email abranton@nodem.com or see Nodem’s investment parameters.
Disclaimer: This glossary is general information about financing structures. It is not investment, legal or tax advice, not a recommendation, and not an offer of financing. Terms and figures are indicative, and every transaction depends on the relevant fund and facility documents. Nodem Ltd is authorised and regulated by the Financial Conduct Authority, FRN 1017481.