ARTICLE
July 1, 2026
Read time: 6 min
As part of London Hot Topics 2026, Polly O’Brien and Vlad Maly explored the rapid evolution of fund finance, the growing role of net asset value (NAV) facilities, and the governance considerations that are increasingly shaping the future of the market.
A few years ago, NAV finance was often viewed as a niche product used in specific circumstances by a relatively small group of market participants. Today, that picture looks very different.
As private markets continue to evolve, NAV facilities have become an increasingly important tool for managers seeking to enhance liquidity, support portfolio management, and create additional flexibility within fund structures.
As adoption accelerates, however, attention is increasingly shifting away from whether these facilities should be used and towards how they are governed.
From niche product to core infrastructure
The growth of NAV finance reflects broader structural changes across private markets. Longer holding periods, slower exits, and the continued expansion of evergreen and semi-liquid fund structures have all increased demand for flexible financing solutions.
Market commentary in 2026 has reinforced the same theme: As exit windows remain uneven and private equity portfolios continue to hold a large volume of unrealised assets, NAV loans are increasingly being used to bridge timing mismatches, support follow-on capital needs, and avoid premature sales of quality assets.
At the same time, the availability of institutional lending capital has expanded significantly, with banks, private credit funds, insurers, and other institutional capital providers becoming more comfortable underwriting diversified portfolios, asset-backed structures, and more bespoke collateral packages.
As a result, NAV facilities are increasingly being viewed as part of the core infrastructure supporting private markets rather than a specialist financing solution.
Understanding the evolution of fund-level leverage
Unlike subscription facilities, which rely on investor commitments, NAV facilities are secured against the underlying assets within a portfolio. This distinction is important because it shifts the focus from future capital commitments to the performance, valuation, and governance of the assets themselves.
As structures become more sophisticated, managers are increasingly using NAV facilities as a practical portfolio management tool rather than a narrow liquidity product.
In mature funds, these facilities can support follow-on investments, manage distributions, provide financing for continuation vehicles, facilitate portfolio optimisation, and address short-term liquidity needs without forcing an accelerated exit process.
This wide range of uses means that, for many managers, NAV facilities are becoming an integral part of the ordinary fund finance toolkit – including portfolio management, capital formation, and value preservation – rather than an exceptional response to financial stress.
Investor scrutiny is changing
One of the most notable developments discussed during London Hot Topics 2026 was the evolution of investor expectations.
Historically, investor conversations often focused on whether a manager used leverage. Today, investors are asking different questions, and those questions are more focused on governance, transparency, and alignment than on the mere existence of leverage.
Rather than treating fund-level leverage as a binary issue, investors increasingly want to understand how it is governed, what purpose it serves, how risks are monitored, how the facility interacts with the broader fund structure, and what protections exist for investors.
This reflects a more mature market in which limited partners (LPs) are becoming more familiar with NAV products, but also more demanding about valuation discipline, reporting, and the use of proceeds.
The discussion has become more sophisticated, reflecting the growing maturity of both the market and its participants.
Growth requires trust
Rapid growth inevitably attracts increased scrutiny.
Recent developments across the broader asset-backed lending and private credit markets have reinforced the importance of governance, collateral verification, and transparency.
In a NAV context, that means lenders and investors are paying closer attention to the quality of reported NAV, the reliability of portfolio valuations, the robustness of borrowing-base calculations, the treatment of asset-level debt, and the extent to which cash flows can be captured and applied through appropriate account and collateral arrangements.
As managers, lenders, and investors continue to embrace NAV finance, the long-term success of the market is likely to depend on maintaining confidence in valuation processes, collateral arrangements, and risk management frameworks.
The challenge is no longer simply accessing capital. It is ensuring that governance infrastructure develops alongside market growth.
Innovation continues
The discussion also highlighted several emerging trends likely to shape the future of the market.
Adoption is widening beyond the largest sponsors, while hybrid facilities that combine subscription-line and NAV-style features are becoming more prominent, particularly where funds need a financing solution that can evolve as a portfolio matures.
At the same time, insurance capital and other institutional capital sources are becoming more active, and lenders are developing more sophisticated collateral structures to address concentrated portfolios, continuation vehicles, credit funds, and other asset class-specific requirements.
As the market evolves, managers are likely to have access to an increasingly diverse range of financing options, but the most successful structures are likely to be those that match the financing purpose, collateral package, and governance framework to the maturity and composition of the relevant fund portfolio.
Looking ahead
The NAV finance market has moved far beyond its origins as a specialist financing product.
Today, it plays an increasingly important role within the private markets ecosystem and is likely to continue expanding as managers seek greater flexibility in managing portfolios, financing longer hold periods, and responding to investor expectations around liquidity and transparency.
The next phase of growth, however, may depend less on innovation for its own sake and more on governance.
As adoption increases, managers, lenders and investors will all need confidence that valuation, collateral, and risk management frameworks can evolve alongside the market itself.
In that sense, the central question for 2026 is not whether NAV finance will remain relevant, but whether the market can continue to scale in a way that preserves trust, supports responsible liquidity management, and gives investors a clear understanding of how fund-level leverage is being used.
Continue the conversation
If you would like to discuss any of the issues highlighted above, please reach out to Polly O’Brien, Vlad Maly, or your usual McDermott Will & Schulte contact.
