Allocators Are Demanding Reform
Andrea Auerbach, head of global private investments at Cambridge Associates, told Institutional Investor in August 2023 that NAV loans can add "leverage on leverage" on top of fund and portfolio company debt. Cambridge advises on roughly $300 billion of private market commitments. The framing has stuck in LP committees, and pressure for better disclosure and structure has built from it.
Source: Institutional Investor, "Allocators Aren't Happy With the NAV Lending Craze" (August 2023).
Neil Randall, head of private equity at the Teacher Retirement System of Texas, told Institutional Investor that "NAV loan utilization is an underwriting consideration for PE commitments. We don't like seeing them, particularly at current rates." TRS holds roughly $200 billion in plan assets with a significant private equity allocation. The framing is rate conditional and underwriting focused, not a categorical exclusion of NAV facilities.
Source: Institutional Investor, "Allocators Aren't Happy With the NAV Lending Craze" (August 2023).
JPMorgan is in discussions to transfer risk on a NAV loan pool of more than $4 billion via synthetic risk transfer, reported in May 2026. The structure passes up to 12.5% of losses to outside investors at low teens returns, leaving the loans on JPMorgan's balance sheet while reducing regulatory capital. The largest bank in the category is managing concentration risk while staying in the business. Even active lenders see the structural risks the LP community is raising and are pricing them out of balance sheet exposure.
Source: Financial Times, JPMorgan NAV loan synthetic risk transfer (May 2026); Private Equity Wire and PE Insights coverage of the same transaction.
ILPA Is Rewriting the Rulebook
ILPA has pushed for explicit LPAC approval before a NAV facility activates, new LPA template language for NAV finance, and standardized disclosure on continuation vehicle conflicts. The 2023 to 2024 guidance treats NAV finance and continuation vehicles as the two structures where existing LPA terms most often fail to give LPs a meaningful consent right. The reform direction is clear: more consent, more disclosure, more bright line tests.
Source: ILPA NAV facility consent guidance and LPA template work (2023 to 2024); ILPA Continuation Funds Guidance.
The reform direction is clear. The five principles below address each criticism. Each is something a smart contract could enforce automatically in a way bilateral bank negotiation cannot, if the category adopts them as standard.
Part 2: Five Reform Principles and How Chain Could Enforce Them
Each principle can be written into a fund finance contract today, and each is routinely negotiated away under fundraising pressure. A smart contract enforced version would remove the optionality. The check runs at draw time, the vote is recorded on chain, the haircut is built into the borrowing base formula. No discretionary override.
1. Hard LTV caps
The contract enforces a 10 to 15% LTV (loan to value) cap and a portfolio composition test on every draw. Inputs come from the fund administrator's attested NAV feed. If either test fails, the draw is blocked. The TradFi equivalent is a monthly credit officer review with discretion to waive. Market LTVs currently run 10 to 20% at entry.
Source: Callan, NAV Loans Risk note (March 14, 2025); ILPA NAV-Based Facilities Guidance (July 2024).
2. Mandatory LPAC consent with use case lock
The LPAC (Limited Partner Advisory Committee, a group of LP representatives the GP consults on conflicts and key decisions) vote happens off chain through the normal committee process. The result is attested on chain by the fund administrator, tagged with the use case (growth capital, save a company, distribution funding) and the vote tally. The contract requires a valid attestation that meets the category specific quorum before clearing the draw, with distribution funded draws requiring a supermajority. The TradFi equivalent is a board memo and a phone call with no enforcement of the use case tag.
Source: ILPA NAV-Based Facilities Guidance (July 2024); ILPA 2023 to 2024 LPA template work.
3. Independent third party valuations with illiquidity haircut
A named independent valuation firm (Houlihan Lokey, Duff & Phelps, Kroll) verifies fund NAV and reports to the fund administrator. The administrator attests the verified mark on chain. The contract applies a 20 to 30% illiquidity haircut to the attested mark before setting the borrowing base. If the attestation goes stale past a defined window, the borrowing base freezes and no new draws clear. The TradFi equivalent is lender judgment plus a negotiation with the GP, with the haircut subject to override.
Source: Jefferies Global Secondary Market Review (H2 2024, H1 2025); Moody's and S&P NAV facility commentary.
4. Ring fenced collateral, no cross collateralization
Each portfolio company sits in its own SPV with a discrete security interest recorded on chain. The loan agreement encodes which SPVs are pledged for which facility. On default, the trust seizes the named SPVs only. Healthy companies in the same fund are untouched. The TradFi equivalent is a master pledge across the portfolio that aggregates exposure and forces LPs to litigate scope after the fact.
Source: ILPA NAV-Based Facilities Guidance (July 2024). ILPA addresses disclosure of collateral scope but does not specify ring fencing explicitly.
5. Standardized cost disclosure with non recallable distributions
The Total Expense Ratio for the facility is published on chain and refreshed each interest period. Distribution flows are tagged at issuance with their funding source (operating cash, exit proceeds, NAV loan draw). NAV loan funded distributions carry a non recallable classification in the legal docs, mirrored by the on chain tag, giving LPs a machine readable record they can point to if a GP later tries to recall. The TradFi equivalent is a multi page fee schedule and a recallable clause buried in the LPA.
Source: ILPA NAV-Based Facilities Guidance (July 2024); Callan, NAV Loans Risk note (March 14, 2025).
Part 3: Standardization Is a Prerequisite for Any Takeout
NAV facilities today are bespoke. Every deal has different LTV caps, different covenants, different valuation conventions, and different definitions of an eligible asset. No two NAV loan books are directly comparable. The five reform principles above would change that. Underwriting to a common standard, with the underwriting machine readable, makes a NAV loan pool eligible for rating agency analysis in a way no current book is.
Honest framing on what that unlocks. There is no public NAV ABS market today and no specific institutional buyer base waiting to receive one. The realistic takeout options that exist now are: hold to maturity inside a dedicated fund vehicle (the 17Capital model), synthetic risk transfer on a bank balance sheet (the JPMorgan model reported in May 2026), and private placement to insurance companies hunting floating rate spread. None of these is a public deep liquidity pool the way HELOC ABS is.
Standardization is a prerequisite for any of those routes to widen. A rated SRT tranche needs a comparable loan pool. A private placement priced against a rating needs an analyzable pool. A dedicated fund hold can absorb non standardized loans, but the deal economics tighten as the buyer base broadens. Reform principles are upstream of takeout, not a guarantee of it.
What standardization could enable, and what it does not promise
Reform principles
Enforced by smart contract at origination
Loan books
Become standardized and comparable across originators
Rating agency analysis
Becomes feasible on pooled NAV loans
Realistic takeout today
Hold to maturity fund, SRT, insurance private placement
Public NAV ABS market
Does not exist; may never emerge at HELOC scale
Origination repo capital
Available to the extent any takeout route is reliable
Source: 17Capital fund model; Financial Times reporting on JPMorgan NAV SRT (May 2026); industry coverage of insurance private placement in NAV finance.
These are the conditions the category would need to meet to scale responsibly. The principles are sourced from LP advocacy and ILPA work. Smart contract enforcement is one path to making them non negotiable rather than recommended. Whether the infrastructure work happens, and who builds it, is the open question.
Sources
Institutional Investor, "Allocators Aren't Happy With the NAV Lending Craze" (August 2023)
17Capital, "In Defence of NAV Financing: a reply to recent criticisms" (March 2024)
Callan, "NAV Loans Risk: What Limited Partners Should Consider in 2025" (March 14, 2025), https://www.callan.com/blog/nav-loans-risk/
Callan, "NAV Loans: What Institutional Investors Need to Know in 2025", https://www.callan.com/blog/nav-loans/
ILPA, "NAV-Based Facilities Guidance" (July 2024), https://ilpa.org/wp-content/uploads/2024/11/Part-I-Nav-Based-Facilities-Guidance.pdf
ILPA, Continuation Funds Guidance and disclosure templates (2023 to 2024)
Jefferies, Global Secondary Market Review (H2 2024 and H1 2025) for secondary pricing observations
Industry reporting on JPMorgan synthetic risk transfer of NAV loan exposure (2024 to 2025)
Teacher Retirement System of Texas, public statements on private equity allocation policy
Bain & Company, "Global Private Equity Report 2026"
17Capital, published NAV finance market outlook projecting $700B addressable by 2030
17Capital, press release on Credit Fund 2 final close at $7.5B (February 2025)
Macfarlanes, "NAV Facilities to PE and PC Borrowers"
Mayer Brown, "NAV Credit Facilities: The Spectrum of Collateral Structures" (2024)
Moody's and S&P sector commentary on NAV facilities and private credit (2024 to 2025)
figure.com, About and Investor pages; Figure HELOC ABS shelf documentation