When a NAV loan starts to look like a margin loan, and why that matters below $50m

For most of the last decade the two ways a private equity sponsor borrowed against equity sat in separate worlds. A margin loan was a loan against listed shares, usually the stake a sponsor kept after an IPO, with daily pricing and a margin call if the stock fell. A NAV loan was a loan against a whole fund portfolio of unlisted companies, tested quarterly against the sponsor's own marks, with no single company doing the work. Different desks at the bank, different documents, different people.

That separation is going. Over the last two or three years the largest sponsors have started using structures that take the single asset focus of a margin loan and the valuation mechanics of a NAV loan and put them in one facility. The trade press tends to call this structured NAV finance. We think of it more simply as single asset back leverage, and it is worth understanding because the same pressure that created it at the top of the market is now arriving at the family office and smaller GP end where we work.

What the large sponsors are doing

The clearest example is the loan taken against one large portfolio company a year or so before it lists. The sponsor pledges the shares of the company, agrees a loan to value test against its own quarterly mark or an earnings multiple, and borrows at a level that would be impossible on a plain portfolio NAV facility. The purpose is to return cash to investors well before the exit, which does a great deal for the reported return. Because the collateral is one unlisted company rather than a diversified book, the lender almost always wants some support from the fund above it. That support is rarely a full guarantee. More often it is a contingent guarantee that only switches on if asset coverage falls below a floor, or a commitment from the fund to top up any shortfall after an enforcement. The point of that support is that the loan can stay in place through the IPO and the lock up, which is exactly when a conventional margin loan is most dangerous, and then be refinanced with something cheaper once the shares have a trading history.

The same idea is being used on the way into a deal. Where a buyout is part financed with preferred equity, the sponsor can borrow against that preferred instrument at advance rates far above anything a NAV lender would offer on common equity, again with a light fund level coverage test behind it. The price sits between ordinary leveraged debt and fund level NAV money. For a sponsor facing a tight leveraged loan market or an equity cheque that is too large for the fund, it changes the returns.

What ties these together is that the lender looks in two directions at once. Down to a specific asset for the security and the valuation test, and up to the fund for a degree of recourse. A plain NAV loan looks only down to the whole portfolio. A plain margin loan looks only down to listed shares. The hybrid takes something from each.

Why it is moving down market

The reason this is happening is not clever structuring for its own sake. It is the pressure to return capital. Distributions have been slow since 2022, investors want cash before they commit to the next fund, and sponsors have been pushed to find ways of paying out ahead of exits. Every one of the structures above exists to bring a distribution forward.

That pressure is not limited to the mega funds. A family office with one position that has become most of the balance sheet feels it. A mid sized GP with a company on a dual track and a fund that is fully drawn feels it. An independent sponsor holding a controlling stake through a holding company feels it most of all, because there is often no diversified portfolio to lend against in the first place.

We see the same asks arrive at our end of the market in a less polished form. A family office wants to borrow against a single company that is 60% of its private book. A manager wants liquidity against a position in a company that has raised a large round and may list in eighteen months. A sponsor wants to fund a follow on in its best company and the only collateral is that company. Three years ago those conversations ended quickly, because the answer from a NAV lender was that one asset is not a portfolio. The answer now is more interesting, and more conditional.

What it actually costs below $50m

The honest version is that single asset back leverage at the smaller end is expensive and comes with recourse of some kind. The mega sponsor can get a fully non recourse pre IPO loan because the asset is worth tens of billions, is already well understood by the market, and the bank expects to win the IPO mandate as part of the deal. None of that applies to a $40m stake in a private company held by a family office.

What is available is a loan at a lower advance rate than the headlines suggest, typically 15% to 25% of a conservative mark rather than the 40% or more you read about at the top of the market, priced above a diversified NAV loan and below preferred equity, with support from the rest of the balance sheet. That support is the part to negotiate. A blanket personal guarantee is the lazy version and we would push back on it. A contingent guarantee that only bites if coverage falls below an agreed level, or a pledge of a second pool of assets that is only called on after the main collateral is exhausted, achieves the same thing for the lender and leaves the borrower with far less at risk in the normal course. These are the same tools the large sponsors have been using, scaled down.

The valuation test matters more than the rate. On a single asset there is no diversification to smooth a markdown, so the lender will want a clear basis for the mark, usually the last priced round or a multiple of audited earnings, and the right to challenge it. A borrower should expect the loan to value test to be the live covenant and should know, before signing, what happens at each level. A step up in margin at the first threshold, a cash sweep at the second, a cure period at the third. A single asset facility that goes straight from compliant to default has been badly structured.

Where this is useful and where it is not

It is useful where there is a defined event. A listing, a sale process, a round that is already in motion. The loan bridges to that event, the event repays it, and the cost is a fraction of what the borrower would give up by selling into a secondary market that marks private positions down hard. It is also useful for a family office that holds a concentrated position it has no intention of selling but needs liquidity against, provided there are other assets that can stand behind the loan.

It is not useful as a way to lever a company that has no exit in sight. A bridge needs something on the other side. Nor is it useful where the valuation rests on a round that has not closed. We regularly see portfolios presented at a number that depends on a financing that is still being negotiated, and no lender will advance against that.

What this means in practice

For families and smaller managers the practical lesson from the top of the market is that concentration is no longer an automatic no, but it changes the shape of the loan. Expect a lower advance rate, a sharper valuation test, and a conversation about what else stands behind the facility. Go in with a clear event that repays it. And ask for the contingent forms of support rather than accepting the first guarantee put in front of you.

For lenders, including us, it means the clean line between NAV lending and equity finance is gone. The borrower does not care which desk a product sits on. They care whether the person across the table can look at a single large position inside a wider balance sheet and structure around it rather than decline it. That is the capability the large banks are now organising themselves to offer their biggest clients. There is no reason the same thinking should stop at $50m.

If you are looking at a facility against a concentrated position, send us the position, the basis of the mark, and what repays the loan. We will tell you quickly whether it works and roughly what it would cost.