Why are NAV loans so expensive to structure?

The second most common question we hear, after pricing, is about legal fees. "My bank gave me an unsecured line and the paperwork cost nothing." "My GP commit loan was documented for a fraction of that." Then a NAV lender quotes $200,000 to $300,000 of lender counsel fees for a $15m facility and the conversation stalls.

This article is about one product, a NAV loan secured on a portfolio of interests in third-party funds, held by a family office, an individual or a fund of funds. That is the structure where the legal cost surprises people most. The figures are our indicative US dollar budgets in 2026 for a portfolio of ten to twenty interests across one to three jurisdictions. They are not a market minimum, but they are what borrowers should expect from most specialist lenders on a deal of that shape.

What you were comparing it to

An unsecured bank line to a wealthy family is priced on the relationship and documented on the bank's standard form. There is no security package and no diligence on anyone else's fund documents. A GP commit loan or management company facility still involves document review, but on assets the borrower controls, usually a fee stream or the GP's own interest, in one jurisdiction, under one set of documents. Those deals are cheaper because the collateral is simpler, not because lenders cut corners.

A fund-interest NAV loan is secured on positions in vehicles the borrower does not control, each with its own constitutional documents and its own view on whether an interest can be pledged, and often in more than one jurisdiction. That is where the cost comes from.

Who sends a bill

Before the cost centres, the counterparties. The borrower pays the lender's counsel, which is the $200,000 to $300,000 figure. The borrower also pays its own counsel to negotiate the facility and give the borrower-side opinions, and that bill is often of the same order. Local counsel in Cayman, Luxembourg or Jersey bill separately where those laws are engaged, as a rough guide $30,000 to $50,000 or more per jurisdiction depending on scope. GPs who are asked to consent to a pledge typically pass their own outside counsel's review cost to the borrower, and that is the line item most likely to overrun because nobody controls it. Registration fees, notarisation, searches and any transfer taxes sit outside the legal quotes. When a borrower asks what the deal will cost, the honest answer is the sum of all of these, not the first number.

Where the heavy lifting is

Collateral diligence. Lender's counsel has to establish, for each material position, whether the interest can be pledged, whether a pledge or a change of control at holding company level counts as a restricted transfer, whether GP consent is needed and what the lender can do on enforcement. Mayer Brown's March 2026 note describes reviewing all applicable documents as preferable but often impractical and costly, and records lenders using limited review, borrower representations and covenants to obtain consents after a trigger event as alternatives (Mayer Brown, Transfer Restrictions in NAV Credit Facilities, March 2026). For twenty fund interests that is twenty sets of documents with different answers. Under Delaware law a partner may pledge its interest without ceasing to be a partner unless the LPA provides otherwise, but the statute disapplies UCC §§9-406 and 9-408 for partnership interests, so an anti-pledge clause is effective and the LPA wording decides whether you need consent, get a haircut or lose the position from the pool (6 Del. C. §17-702; 6 Del. C. §17-1101(g)). Fifty interests do not cost two and a half times twenty. They blow through most fee caps.

The borrower structure. Many fund-interest NAV loans are made to a holding company formed to hold the pledged interests rather than to the family or fund directly. It is a structural choice, not a requirement, and it carries cost. Forming the entity, moving the interests into it, which can itself trigger transfer provisions, and documenting the intra-group arrangements. Proskauer's 2025 survey reports that an equity pledge over topco or SPV interests combined with cash account security was the collateral package in 27% of primary NAV deals and 67% of secondaries deals surveyed (Proskauer, Insights on the NAV Financing Market, Full Year 2025).

How much security you give. This is the biggest lever on cost that borrowers do not know they have. At the light end, the lender takes a pledge over the holding company's shares and a control agreement over the account that receives distributions, under UCC §9-104 in a US deal, and does not take security over each underlying interest at all (UCC §9-104). That is a handful of documents and no GP consents. In the middle, the lender adds an assignment of the economic rights in each interest, which usually needs notices but not consents. At the heavy end, the lender takes a full pledge of each interest with GP acknowledgements, which means a consent process per fund. Each step up adds documents, local counsel and GP involvement, and lenders trade it against advance rate. A borrower who accepts a lower LTV can often take the light structure and halve the legal bill.

Opinions, tax and onboarding. Lenders customarily require legal opinions on capacity, enforceability and, where relevant, perfection, and their credit committees rely on them. Who gives which opinion varies by deal and jurisdiction. Tax advice is needed where moving interests into a holdco, withholding or investor tax status is affected. KYC on the borrower and its beneficial owners is lender onboarding rather than legal work, but it takes time and can hold up closing.

The facility agreement. Borrowing base definitions, eligibility, valuation mechanics, the pricing grid, sweeps and covenants are drafted and negotiated. On a clean deal this is a modest share of the bill. On a contested one it is not.

Why size does not change much

A $15m facility against twelve fund interests and a $60m facility against the same twelve need the same document reviews, the same holdco, the same security and the same opinions. That is why specialist NAV lenders have minimum facility sizes, ours is $10m, and why bespoke NAV loans below that are uneconomic for the borrower once fees are added to the rate. Smaller NAV-backed borrowing does exist, but at private banks on standardised, non-negotiable platforms for existing clients, which is a different product.

Why AI has not made it cheap

AI has changed the first pass. Document review tools extract transfer and pledge provisions from LPAs and side letters quickly and well, and many fund finance practices now use them. What they have not changed is who signs. An opinion the lender can rely on is given by a law firm that has verified the documents. The American Bar Association's Formal Opinion 512 allows proportionate rather than full manual verification once a tool has been tested, but it keeps responsibility with the lawyer and requires that clients are billed for time actually spent, so saved hours cannot be billed as worked (ABA Formal Opinion 512, July 2024). The Solicitors Regulation Authority's August 2026 warning notice takes the same line on accountability and verification, and the Law Society's guidance tells solicitors to check and authenticate AI output rather than delegate judgment to it (SRA, Misuse of AI warning notice, 17 August 2026; Law Society, Generative AI, the essentials). So AI compresses reading. It does not compress negotiating with GPs, forming entities, perfecting security in three jurisdictions or signing opinions. Our own expectation, and it is a forecast rather than a sourced figure, is that it brings a clean $300,000 deal towards $150,000 over the next few years. It will not bring it to the cost of an unsecured bank line.

How we manage the cost

Market practice is for the borrower to pay the lender's reasonable legal costs. Our approach is as follows. The term sheet states an estimate and a cap on lender counsel fees and disbursements, with the assumed scope of security and the jurisdictions written down. On signing the term sheet the borrower pays a deposit, typically $100,000 to $150,000, which is credited against the final bill at closing or refunded less costs incurred if the deal does not proceed. If documentation uncovers something that will take the work past the cap, typically an unexpected consent or an extra jurisdiction, the borrower is told and approves the increase before the work is done. What the borrower does not get is an open-ended bill after the fact.

The practical way to keep the number down is to do the triage before signing. Share the fund documents for the largest positions early, agree the scope of security, confirm which entities will sit in the structure and which laws govern them, and flag any known pledge restrictions. A lender who can see the shape of the collateral in week one can scope the legal work accurately. Most of the overruns we have seen come from surprises in week five.