Key questions on NAV financing for family offices
The following are key questions and answers drawn from the full report, Family Offices: The Case for NAV Financing by Alex Branton, CIO and Founder of Nodem Capital.
What is NAV financing? NAV financing is a loan or preferred equity investment secured against the net asset value of a portfolio of investments. The collateral is the whole portfolio, not a single asset and not uncalled capital commitments. This distinguishes it from a subscription line, which is secured against LP commitments, and from asset-level debt, which sits against an individual property or company.
What loan-to-value ratios are typical for NAV facilities? Typical loan-to-value ratios range from 10% to 30% of NAV, with most facilities structured conservatively around 20% to 30%. Tenors usually run three to five years.
How much does NAV financing cost? Non-bank NAV lending is generally priced at SOFR plus 400 to 700 basis points, an all-in headline cost of roughly 9% to 12%. Families should also account for arrangement fees of 1% to 2%, unused commitment fees, and in some cases exit fees, all of which can raise the effective cost, particularly on a partially drawn facility.
How do family offices use NAV financing? Common uses fall into reactive applications, where a family responds to an immediate need, and proactive ones, where the facility optimises the portfolio's capital structure over time. These include preserving compounding positions rather than selling at a secondary discount, bridge financing during continuation vehicles, funding follow-on and co-investments, tax-efficient liquidity, and reducing cash drag. Follow-on investments are the most cited use globally.
How large is the NAV financing market? The global NAV financing market is currently valued at approximately $100 billion and is projected to reach $600 billion by 2030. Even at that scale, it represents only about 1% of the global private equity market, meaning the market is maturing but has not yet reached institutional ubiquity.
What are the main risks of NAV financing? The fundamental risk is valuation, since the collateral is a portfolio of private, often illiquid assets whose values are inherently subjective. Other considerations include covenant complexity and the operational burden of ongoing compliance, cost of capital, interest rate and refinancing risk, and LP and governance scrutiny. Best practice involves independent third-party valuations, conservative LTV limits, board-level approval, and documented use of proceeds.
