NAV-Based Facilities Guidance & Roadmap
The use of NAV-based financing facilities in private equity strategies has increased in recent years. ILPA’s guidance on NAV facilities provides parameters for improving transparency and encouraging a more productive dialogue between LPs and GPs around their use.
Introduction
Net Asset Value (NAV)-based financing facilities have been commonly used in secondaries, private credit, and real estate for some time, but their prevalence in private equity strategies is on the rise.
Understanding around these products is relatively nascent, and limited transparency around their use inhibits LPs’ understanding of the impacts of these facilities, including costs and any risks. Additionally, Limited Partnership Agreements (LPAs) often do not explicitly address NAV facilities, leading to differing approaches among GPs in engaging LPs around their use, as well as a spectrum of approaches to reporting.
Through guidance developed with the thoughtful feedback from ILPA member LPs, as well as GPs, law firms, lenders and rating agencies, ILPA articulates a shared set of industry expectations around how GPs engage their LPs in the use of NAV-based facilities as a liquidity and portfolio management tool.
- Go to NAV-Based Facilities: Guidance for LPs and GPs (PDF)NAV-Based Facilities: Guidance for LPs and GPs (PDF)Download ILPA's full five-part guidance on NAV-based facilities.
NAV-Based Facilities Roadmap
Use the roadmap below to explore the different parts of the ILPA guidance, and gain a better understanding of NAV-based facilities and ILPA's recommendations for their use.
Part 1: Overview of NAV-Based Facilities and Current Market Practices
In this section, learn how NAV-based facilities are structured, the roles of lenders and rating agencies and how the PE industry is currently using NAV facilities.
- Go to NAV-Based Facilities Guidance: Part 1 (PDF)NAV-Based Facilities Guidance: Part 1 (PDF)Download the full section on Overview of NAV-Based Facilities and Current Market Practices
Related Resources
- Go to Inside ILPA's New NAV Facility Guidance (Webcast Replay)Inside ILPA's New NAV Facility Guidance (Webcast Replay)Review the details of ILPA’s NAV-based facilities guidance from a range of industry perspectives and deliberate how to adopt the recommendations into industry practices.
- Go to NAV-igating the Facility (Workshop Replay)NAV-igating the Facility (Workshop Replay)Examine how LPs and service providers have experienced NAV facilities, learn key terms and tools LPs can employ to mitigate the potential drawback of NAV facilities.
- Go to Agility in Dealing with NAV Facilities (Workshop Replay)Agility in Dealing with NAV Facilities (Workshop Replay)Examine the terms and structures of NAV-based facilities from a legal perspective.
- Go to Subscription Lines of Credit: NAV-igating the Future of Sublines (Webcast Replay)Subscription Lines of Credit: NAV-igating the Future of Sublines (Webcast Replay)Examine the structures of sublines, hybrid financing facilities and NAV-based financing facilities.
Part 2: LP Concerns Regarding NAV-Based Facilities
Review the challenges that LPs face when their managers use NAV-based facilities. This includes limited transparency and governance around NAV facilities, and specific challenges when a facility is used for a distribution or to support the existing portfolio.
- Go to NAV-Based Facilities Guidance: Part 2 (PDF)NAV-Based Facilities Guidance: Part 2 (PDF)Download the full section on LP Concerns Regarding NAV-Based Facilities
Related Resources
- Go to Inside ILPA’s New NAV Facility Guidance (Webcast Replay) Inside ILPA’s New NAV Facility Guidance (Webcast Replay)Review the details of ILPA’s NAV-based facilities guidance from a range of industry perspectives and deliberate how to adopt the recommendations into industry practices.
- Go to NAV-igating the Facility (Workshop Replay)NAV-igating the Facility (Workshop Replay)Examine how LPs and service providers have experienced NAV facilities, learn key terms and tools LPs can employ to mitigate the potential drawback of NAV facilities.
- Go to Agility in Dealing with NAV Facilities (Workshop Replay)Agility in Dealing with NAV Facilities (Workshop Replay)Examine the terms and structures of NAV-based facilities from a legal perspective.
- Go to Subscription Lines of Credit: NAV-igating the Future of Sublines (Webcast Replay)Subscription Lines of Credit: NAV-igating the Future of Sublines (Webcast Replay)Examine the structures of sublines, hybrid financing facilities and NAV-based financing facilities.
Part 3: Recommendations for Improved Transparency and LP Engagement
ILPA recommends that if the LPA does not give explicit permission to utilize a NAV facility GPs should engage the LPAC for consent prior to implementing a facility. ILPA also recommends that GPs should engage the LPAC for consent to utilize a NAV-based facility if the intended use case is for a distribution, regardless of LPA language.
- Go to NAV-Based Facilities Guidance: Part 3 (PDF)NAV-Based Facilities Guidance: Part 3 (PDF)Download the full section on Recommendations for Improved Transparency and LP Engagement
- Go to Flowchart: When to Engage the LPACFlowchart: When to Engage the LPACA simple explanation of how GPs should engage LPACs around the potential use of a NAV-based financing facility.
Related Resources
- Go to Inside ILPA’s New NAV Facility Guidance (Webcast Replay) Inside ILPA’s New NAV Facility Guidance (Webcast Replay)Review the details of ILPA’s NAV-based facilities guidance from a range of industry perspectives and deliberate how to adopt the recommendations into industry practices.
Part 4: Proposed Legal Documentation
ILPA recommends that GPs and LPs adopt language in LPAs moving forward that set guardrails around permissible uses of NAV-based facilities. This legal language should appropriately define “NAV-based Facilities” and set a clear limit to the amount a GP is able to incur through a facility.
- Go to NAV-Based Facilities Guidance: Part 4 (PDF)NAV-Based Facilities Guidance: Part 4 (PDF)Download the full section on Proposed Legal Documentation
Related Resources
- Go to Inside ILPA’s New NAV Facility Guidance (Webcast Replay) Inside ILPA’s New NAV Facility Guidance (Webcast Replay)Review the details of ILPA’s NAV-based facilities guidance from a range of industry perspectives and deliberate how to adopt the recommendations into industry practices.
- Go to Agility in Dealing with NAV Facilities (Workshop Replay)Agility in Dealing with NAV Facilities (Workshop Replay)Examine the terms and structures of NAV-based facilities from a legal perspective.
- Go to ILPA Model LPA (Resource)ILPA Model LPA (Resource)ILPA’s Model LPA provides a best-in-class legal document for the private equity industry. The document includes legal language on subscription lines of credit.
Part 5: Recommended Disclosures Related to the Use of NAV-Based Facilities
ILPA recommends that that GPs disclose the rationale for the facility, the key terms of the facility and how any conflicts related to the facility were managed to all LPs in the fund in a standardized template, available below.
- Go to NAV-Based Facilities Guidance: Part 5 (PDF)NAV-Based Facilities Guidance: Part 5 (PDF)Download the full section on Recommended Disclosures Related to the Use of NAV-Based Facilities
- Go to Standardized Disclosures: Use of NAV-Based Facilities (Word Template)Standardized Disclosures: Use of NAV-Based Facilities (Word Template)The word document provides an easy-to-fill-out template of key information to distribute to LPs about a NAV-based financing facility.
Related Resources
- Go to Inside ILPA’s New NAV Facility Guidance (Webcast Replay) Inside ILPA’s New NAV Facility Guidance (Webcast Replay)Review the details of ILPA’s NAV-based facilities guidance from a range of industry perspectives and deliberate how to adopt the recommendations into industry practices.
Industry Endorsers
Organizations that are interested in endorsing Part 5 should submit a request in writing to ILPA at bhoehn@ilpa.org. Endorsing organizations would agree that standard disclosures around the use of NAV-based financing facilities is beneficial for the private equity industry and agree that they will make their best efforts to encourage adoption of Recommended Disclosures Related to the Use of NAV-Based Facilities within the industry.
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