Once used to sustain cash flows during deal-making slowdowns, NAV loans have come under scrutiny for potentially weakening portfolio companies and diluting returns. While these loans were often used for investor payouts, data from 17Capital shows “money-out” transactions dropped to just 3% of NAV loan volume in 2023, down from 24% in 2022. Increasingly, firms are using NAV loans to reinvest in portfolio companies or fund acquisitions instead.
This shift reflects growing influence from limited partners (LPs, who have raised concerns about the long-term risks of NAV loans. Greater transparency and engagement with LPs have become a priority for private equity managers, as they navigate pressure to use capital more responsibly.
“Using NAV loans for distributions is somewhat like kicking the can down the road,” said Christian Wiehenkamp, CIO of Perpetual Investors.
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Private Equity Pull Back From Exotic and Controversial Liquidity Loans
SOURCES
Bloomberg, Jan 2025 - Private Equity Pull Back From Exotic and Controversial Liquidity Loans
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