NAV financing, points out Ed Saunders, a partner and co-chair of Goodwin’s Fund Finance Group, is a product that has become more prominent since the pandemic. But in some respects, it is nothing new, as private funds in other asset classes – like secondaries and private credit funds – have been using leverage to fund acquisitions of portfolios for some time. Financing providers are repaid in due course from future sales of the underlying assets. “A lot of the press coverage from some investors is driven by a concern that GPs might try and put these facilities in place without consulting the investors,” says Saunders. As he points out, this can happen if fund documents were drafted as long as five or six years ago. In such cases, it simply was not envisaged that one of these facilities might be put in place and the situation can create some ambiguity in the fund documents as to the way the financing can be implemented. Saunders adds: “What we actually see is that most managers take a very responsible approach to implementing these facilities and do so in consultation with their investors.” For GPs, Saunders says, it is important to understand both what they can do according to their fund documents when implementing such a facility, and to consider the impact on the internal rate of return (IRR). Another consideration is to manage investor communication and education around why it may be a beneficial product for the fund. The fact that loan-to-value ratios are often set at conservative levels of around 10-20%, according to Saunders, means that lenders have a very over-collaterised position. As a result, NAV financings are typically rated as investment grade. For more information, read the article on Investment & Pensions Europe.