Subscription and NAV finance are two related forms of fund finance that investment funds use to manage capital and liquidity. A subscription credit facility is a loan secured by the uncalled capital commitments of a fund’s limited partners. Because it is backed by investors’ obligations to contribute capital, it is typically used early in a fund’s life to bridge the time between making an investment and calling capital from investors.
A NAV facility, sometimes called a NAV line, is instead secured by the net asset value of the fund’s underlying investments. Because it is backed by the portfolio itself, it is generally available later in a fund’s life once assets have been acquired. Both tools are widely used by private equity, credit and other private fund managers, and each carries distinct legal, disclosure and governing-document considerations.
Related questions
What is a subscription credit facility? It is a revolving loan to a fund that is secured by the unfunded capital commitments of the fund’s investors. It lets a manager move quickly on investments and smooth the timing of capital calls.
What is a NAV facility or NAV line? A NAV facility is financing secured by the value of a fund’s existing portfolio rather than by investor commitments. It is often used to support later-stage liquidity needs, follow-on investments or distributions.
How do subscription and NAV facilities differ? A subscription facility looks to investors’ uncalled commitments for repayment and suits the early investment period, while a NAV facility looks to the portfolio’s value and suits the later part of a fund’s life. The collateral and the stage of the fund are the key distinctions.
Why do funds use fund finance? Managers use these facilities to improve the timing of capital calls, to provide short-term liquidity, and to manage cash efficiently across the life of a fund. Use of leverage should be addressed in the fund’s governing documents and investor disclosures.
