This case explores E&R Advisors Inc. (E&R Advisors), a multifamily investment-management company, as its chief investment officer contemplates general partners’ (GPs’) increasing use of net asset value (NAV) credit facilities to generate distributions to limited partners (LPs). In the context of private equity (PE) funds, NAV loans allow funds to borrow against the value of their investment-portfolio NAV to finance the incremental capital needs of the portfolio companies (portcos). A post-COVID-19 PE liquidity drought led GPs to expand the use of NAV loans to fund distributions to LPs. PE funds borrowed through a fund’s NAV facility to create liquidity events for LPs.

There are some arguments that this practice distorts actual fund performance and affects LPs’ ability to conduct proper due diligence. E&R Advisors’ chief investment officer aims to better understand the NAV-loan space. What are the core drivers of NAV facilities? What are the risks? Should E&R Advisors outright ban the usage of NAV loans to generate distributions to LPs?

This case has been successfully taught at the University of Virginia Darden School of Business in the "Private Equity Exit Decisions" module of "Private Equity," a second-year MBA elective course. It facilitates a theoretical discussion and a practical application of NAV lending facilities and their effects on various PE stakeholders. Students gain experience with the various use cases of NAV financing in the PE space and with evaluating NAV financing's effect on returns.