Today the Institutional Limited Partners Association (ILPA) issued guidance for Limited Partners (LPs) and General Partners (GPs) around the use of Net Asset Value (NAV)-based financing facilities in private equity strategies.
The new guidance intends to articulate 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.
According to Pitchbook, utilization of NAV-based financing could grow as much as sixfold by 2030. While NAV-based facilities can be a useful tool for capital structuring or to provide financing to support assets, current practices surrounding their use present concerns for LPs.
“We continue to hear from our member LPs that NAV-based facilities are being implemented in ways that leave them in the dark with respect to associated costs and risks,” said ILPA CEO Jennifer Choi. “ILPA’s guidance has been designed to shed light on LP concerns while providing practical recommendations aimed at improving the transparency and engagement that are essential to the LP/GP partnership.”
Concerns reported by LPs include limited insight into when NAV-based facilities are being used, the absence of any reference language governing the use of such facilities within older Limited Partnership Agreements (LPAs), and the fact that GPs often undertake NAV-based facilities without engaging or notifying LPs or the Limited Partner Advisory Committee (LPAC).
ILPA recommends that:
- Where the LPA is silent, GPs seek LPAC consent prior to implementing a NAV-based facility, regardless of the use of proceeds
- GPs seek LPAC approval for the use of NAV-based facilities for distributions, regardless of whether the LPA includes governing language
- Any conflicts of interest associated with a NAV-based facility be brought to the LPAC
- Legal language be included within new LPAs that establishes clear expectations and guardrails regarding use of the facilities
- LPs proactively discuss NAV-based facilities with their GPs to understand whether fund documents for older funds have been interpreted to exclude facilities at the SPV/master holding company from fund-level leverage provisions including borrowing limitations
- GPs provide all LPs within the fund with standardized disclosures about their use of NAV-based facilities once put in place
The guidance includes more detail around each of these recommendations, including sample legal language for new LPAs as well as disclosure templates.
Get the full guidance: NAV-Based Facilities: Guidance for Limited Partners and General Partners
Media Contact:
Megan Goodman
Director, Strategic Communications
mgoodman@ilpa.org
o: +1 202-804-6617 | m: +1 937-243-3182
