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US catching up to Europe on NAV loans as attitudes change, says funding specialist
by Lisa Fu & Lisa Lee
Lending to private funds is a fast-growing corner of the private credit asset class, and with the US market becoming more accepting of funds using leverage, investment opportunities are set to grow.
“This year is going to be the one where the US catches up with Europe,” said Pierre-Antoine de Selancy, partner at 17Capital, a specialist in net asset value (NAV) loans to private equity firms.
NAV loans, which are backed by the investments in a fund, have been gaining prominence in recent years as a source of liquidity for private equity firms that are struggling to exit existing holdings and raise money to fund new deals.
While last year saw a recovery from 2023’s 10-year low for M&A activity, according to Mergermarket data, private equity firms are still contending with a huge backlog of exits and LP investors seeking distributions.
The fast-growing NAV financing market is estimated at USD 100bn, according to a January 2025 Partners Group report. Now, both investors and managers are showing interest as these loans can generate anywhere from 350 to 750bps — comparable to direct lending returns.
17Capital, which typically deploys EUR 3bn to EUR 4bn annually, expects the US market to open up and is already on track to deploy EUR 1bn within the first quarter this year, according to de Selancy.
Since 2023, US investors’ attitude toward NAV loans and fund finance has changed, he said, leading to increased lending opportunities. In 2023, changing rates created doubt and investors had a lot of questions. There was a lot of “negative noise” and some felt that a fund should not borrow money.
But today, institutional investors have a much better understanding of NAV lending and other types of fund finance. “We’re seeing them in the market,” de Selancy said.
As soon as GPs see that LPs are happy with the use of NAV lending, the floodgates will open, he added.
NAV lending helps private equity fund managers provide better returns to investors, de Selancy said. A NAV loan allows the manager to put up existing portfolio assets as collateral to fund more investments, whether these are new platform M&As or bolt-on acquisitions. He estimates that between the US and Europe there are around 1,378 buyout funds all trying to raise money from investors.
The vast majority of fund borrowers use NAV loans to deploy money into investments. De Selancy estimates that over 90% use NAV loans to fund M&A, while just 3% have used it to return money to investors.
The difference between how European and US funds traditionally made distributions to investors and paid out interest may have contributed to European managers adopting fund financing first, de Selancy said.
US funds, which pay out through the life of the fund rather than all at the end, may have had more liquidity on hand and less need for this type of financing until recently. However, it’s hard to say if there was a single driver, he added.
“I think the US is catching up fast,” de Selancy said. “We’re already seeing it in our deal flow.”
