Zac Barnett in Chicago, stands out as an authority in private equity, fund finance, and commercial lending. With nearly 20 years of experience, attorney Zac Barnett has closed more than 500 deals, amounting to $75 billion in loan commitments. His legal expertise includes designing cutting-edge financing structures for investment funds, hedge funds, and real estate transactions.
Mr. Barnett’s reputation among general partners, investors, and fund sponsors stems from his collaborative and solutions-driven approach. Whether navigating compliance challenges related to ERISA or handling complex tax structures, he tailors strategies that align with the multifaceted needs of his clients.
A pioneer in the field, Zac Barnett co-founded the Annual Global Subscription Credit Facility and Fund Finance Symposium, which has become a premier event in the fund finance industry. He is also a prolific author, contributing to over three dozen articles on emerging trends in fund finance and regulatory frameworks. His insights are regularly featured in industry-leading publications like Bloomberg and the Los Angeles Times.
NAV financing allows private equity funds to borrow money by using the net asset value (NAV) of their existing investments as collateral, rather than depending on fresh capital commitments from investors. A private equity fund’s NAV is calculated by subtracting its liabilities from the total value of its assets. These assets could include real estate, shares in private or public companies, or intellectual property owned by the fund.
Take, for instance, a private equity fund that holds a portfolio of promising artificial intelligence, renewable energy, and FinTech companies, valued at $500 million, with outstanding liabilities of $200 million. Its net asset value would be $300 million.
Importantly, NAV loans are not based on the full value of a fund’s portfolio. Lenders apply a discount to account for the fact that these assets can be illiquid and may also lose some of their value. Typically, a fund can borrow about 20 percent to 30 percent of its NAV. This conservative loan-to-value approach protects lenders by ensuring they’re not overexposed if the value of the fund’s assets falls or if the assets take longer to liquidate than expected.
NAV financing is highly attractive to private equity funds because it provides what’s known as non-dilutive capital. Instead of selling stakes in portfolio companies or raising new investor money, the fund can access cash without giving up ownership. This allows managers to back new investments, support existing portfolio companies with growth initiatives or acquisitions, or deliver early returns to investors without being forced into premature asset sales.
Accessing capital through NAV financing can also be faster and more flexible than selling interests in the secondary market, where finding buyers and negotiating deals can take months and potentially lower the value extracted from the sale.
From the lender’s perspective, NAV loans offer a relatively secure way to generate attractive returns. The loans are backed by a pool of underlying companies, often diversified across industries, which reduces concentration risk. Before lending, institutions rigorously review the fund’s holdings to assess quality, performance trends, and resilience. If the fund defaults, the lender usually has rights to seize or claim proceeds from the portfolio assets to recover its investment, creating a built-in layer of protection.
The repayment structure of NAV loans gives lenders first priority. When the fund eventually sells its portfolio holdings, the lender is paid back first – along with accrued interest – before any profits are distributed to the fund’s investors. This senior position in the capital structure is a major reason why lenders are comfortable offering NAV loans against private and less liquid assets.
Loan terms can vary depending on the portfolio’s risk profile, but most NAV loans mature over a medium-term horizon, typically between three and five years. Interest rates are generally higher than traditional corporate loans, reflecting the relative illiquidity of the underlying assets and the complexity of valuing them over time.
Several types of institutions provide NAV loans today. Private credit funds, specialty finance firms, and investment banks with structured finance divisions are all active in this space. Some of the most notable participants include Fund Finance Partners, Hark Capital, and 17Capital, each with specialized experience in analyzing private fund portfolios and structuring financing solutions that balance flexibility for the borrower with strong protections for the lender.