Introduction
Every route to liquidity without a sale pays investors today out of an exit that has not happened yet. A dividend recapitalization borrows against one company and is repaid when it is refinanced or sold; a net asset value (NAV) loan borrows against a fund's portfolio and is repaid from later realizations; a continuation vehicle (CV) moves a company into a new fund run by the same sponsor, whose investors will want their own exit. The volumes therefore measure future exit value already drawn on: sponsored recap loans reached about $74.3 billion in 2025 on PitchBook's US count and rated NAV issuance set a record. Then the routes parted: recap loans fell by more than half in the first quarter of 2026 while general partner-led (GP-led) secondaries, the market where CVs trade, kept climbing. Why, and how limited partners (LPs) value cash that did not come from a sale, shapes the mandates banks should expect next.
How Non-Sale Liquidity Filled the Distribution Gap
The shortfall these routes fill is one of cash, not value. On Bain's measure, cash paid out has not reached 15% of NAV in any year from 2022 to 2025, the drought behind the pressure thin distributions put on every sponsor's next fundraise: a manager returning little cash raises its next fund from investors still waiting on the last one.
- Distribution Gap
The shortfall between the cash limited partners expect a private equity fund to return at its age and the cash it has actually returned, usually measured against a fund's net asset value or its paid-in capital. A wide gap pushes sponsors toward routes that return cash without selling companies outright.
The routes sit at two levels. At the company level, a recap uses one company's debt capacity. At the fund level, a NAV loan or a CV draws on the whole portfolio, which is why a request changes desks at the point where it outgrows one company's credit agreement.
Volumes by Route, Each on Its Own Count
No publisher counts all three routes, so each series comes from one source on one basis: PitchBook's Leveraged Commentary & Data (LCD) unit for recap loans, Jefferies for GP-led deals and Kroll Bond Rating Agency (KBRA) for rated NAV loans. None can be added to another.
| Route | Source and coverage | What is counted | Latest reading | Comparison |
|---|---|---|---|---|
| Dividend recap | PitchBook LCD, US leveraged loans | Loan issuance for sponsored recaps | $11 billion, first quarter of 2026 | Down 54.5% year on year; full-year 2025 $74.3 billion |
| CV and other GP-led deals | Jefferies, global secondaries | GP-led transaction volume | $62 billion, first half of 2026 | $47 billion in the first half of 2025 |
| NAV loan | KBRA, rated facilities only | Issuance of KBRA-rated NAV loans | $23 billion across 38 deals in 2025, a record | Over $82 billion across 157 deals since 2018 |
Recap Loans: A Strong 2025, Then a Sharp First Quarter
LCD puts sponsored recap loans at $74.3 billion in 2025, up 11% after a 326% jump in 2024, according to Capstone Partners' summary of the LCD data, which credits longer holding periods, lender appetite and easing spreads. In the first quarter of 2026 issuance fell 54.5% to $11 billion, which Capstone attributes largely to uncertainty around the conflict in Iran, one of the shocks in the first-half 2026 readings by survey. The quarter still beat the $9.1 billion quarterly median since 2010: a return to normal, not a collapse.
Recaps reverse first because they need loan investors willing to fund a payment that leaves the company, and having no deadline, they are postponed when spreads widen. Sizing a recap against the equity cushion shows why volatility shrinks the dividend before it stops the deal.
Continuation Vehicles and NAV Loans: Growth That Held
The fund-level routes kept growing because they draw on secondary buyers and fund lenders, not the syndicated loan market. Jefferies' July 2026 secondary market review counts $62 billion of GP-led volume in the first half of 2026, up 32%, ties CV activity to sponsors seeking distributions, and reports that 82 of the 100 largest sponsors have run a CV. Pricing sits in the survey-by-survey GP-led figures, the trend against all exits in the rise of CVs as a share of sponsor exits.
NAV lending has no market-wide count. KBRA records a record $23 billion of rated NAV loan issuance in 2025 across 38 deals, in research covering buyout and secondaries funds rather than credit funds: a floor on activity, not a market size. Rede Partners' June 2026 survey adds that most NAV loans still fund investment rather than payouts, so NAV volume overstates the cash reaching LPs.
How Limited Partners Read Borrowed Distributions
A fund's distributions to paid-in capital (DPI), the share of contributed capital already handed back in cash, records that money arrived, not where it came from. LPs ask the second question because a debt-funded payout leaves a claim behind it.
- Synthetic Distribution
A distribution to a fund's investors funded by borrowing rather than by selling an investment, typically through a NAV loan at the fund or a dividend recap at a portfolio company. It raises distributions to paid-in capital without any change of ownership, and the debt behind it must be repaid from later exits.
Only a sale moves ownership and risk to someone else; the borrowed routes leave both with the fund, and the table sets each origin against what remains.
| Origin of the cash | Ownership changes | New debt sits with | What LPs check |
|---|---|---|---|
| Sale of a company | Yes | The buyer | Price against the last mark |
| Dividend recap | No | The company | Cushion left for the next owner |
| NAV-funded distribution | No | The fund, ahead of LPs | Recall rights and carry |
| CV sale election | Yes, for sellers | The new vehicle, if levered | Whether the price was tested |
Borrowed Versus Realized DPI
LPs treat the fund-level routes differently. A CV gives each investor a sell-or-roll election, and in Coller Capital's Summer 2026 Barometer, a survey of 108 investors, 40% expect new CV activity to keep rising even when exits improve, against 31% expecting a decline. The liquidity tension shows too: 39% say managers are not providing liquidity early enough and 22% that the best companies sell too early. NAV-funded payouts face firmer conditions from the Institutional Limited Partners Association (ILPA), whose 2024 NAV guidance and the facility terms behind it ask for advisory committee approval first.
What the Divergence Means for Bank Mandates
The routes split across a bank: a financial sponsors group (FSG) usually spots the company that could pay out, leveraged finance arranges a recap, fund finance lends against the portfolio and private capital advisory (PCA) runs a CV, though the division varies by bank. Recap mandates arrive in waves when spreads tighten, so the useful preparation is a short list of companies whose cushion could support a payout when the window reopens. CV and NAV work follows the distribution gap itself, and in Coller's survey a combined 69% expect CV activity to grow or hold steady even after exits improve.
Combined, the tools form a hold-and-pay pattern: a CV keeps a strong company, a NAV facility funds its add-ons and a recap follows, all before any outside buyer appears.
Each payout is settled later. Recap debt comes out of the buyer's price, NAV loans out of swept proceeds, and CV investors expect a sale of their own, so the 2025 volumes describe exit value already allocated. When realizations recover, the first test of each sale will be how much of its proceeds still reaches the LPs whose distribution gap started the borrowing.
