Fund Finance Map: Subscription Lines, NAV Loans, Hybrids

Introduction

A private equity fund's borrowing capacity follows what it owns, and what it owns changes shape over ten years. On the day of first close the fund holds almost nothing except the uncalled commitments of its limited partners (LPs), so the only thing a lender can take is the general partner's (GP's) right to demand that money: the Institutional Limited Partners Association (ILPA) model agreement lets the GP pledge its right to deliver drawdown notices, and to pursue any LP who fails to pay, to the lender. By year six the commitments are mostly spent and the fund's value sits in its companies, so a lender has to look through to the portfolio instead. The products of fund finance are named for that collateral: subscription lines, net asset value (NAV) facilities, and hybrids that bridge the two, with manager-level and LP-level loans alongside. Private capital advisory (PCA) teams do not lend, but they increasingly decide which of these products a client needs, test what the fund documents allow, and run the process that prices it.

The lifecycle sets the menu. A fund raises commitments, invests them over roughly five years, harvests through exits, and ends with a tail of the last few companies, the arc traced in the fund lifecycle article. At each stage the collateral available to a lender is different, and so is the product that fits.

Each product also moves money to a different party and puts a different party on the hook, so every facility can be judged by the same seven questions:

The rest of the map applies those questions product by product, and the answers are what the comparison of liquidity options sets side by side with continuation vehicles and stake sales. Portfolio-company debt, such as the acquisition loans inside each buyout, sits one layer below all of this and belongs to leveraged finance, not fund finance.

Two products sit between debt and a sale and fall outside the borrowing categories above. Preferred equity gives a fund cash in exchange for a priority return from its portfolio, and collateralized fund obligations package fund interests into rated notes that insurers can hold. Their mechanics belong to preferred equity and structured fund solutions and to CFOs and rated note feeders.

The oldest and largest product is the subscription line, also called a capital call facility. In a survey released in April 2026, the law firm Haynes Boone found that more than 82% of respondents put subscription facilities at over two-thirds of the fund finance market, which more than half placed between $1.25 trillion and $1.75 trillion; the Haynes Boone 2026 fund finance report is a survey of lenders, sponsors, and law firms, so its range is an estimate rather than a count.

How the Security Works: Call Rights, Not Companies

The lender on a subscription line never looks at the portfolio. Its collateral is the machinery of the capital call. Section 7.2.2 of the ILPA Model Limited Partnership Agreement describes the standard package: a pledge by the fund, and the GP's assignment to the lender of its rights to issue drawdown notices and to enforce remedies against LPs who fail to fund. If the fund defaults, the lender can step into the GP's shoes and call the capital itself.

Subscription Line (Capital Call Facility)

A revolving credit facility made to a fund and secured on its investors' uncalled capital commitments, together with the GP's right to call that capital and to enforce it against defaulting investors. It bridges the gap between making an investment and receiving capital from limited partners, and is repaid from later capital calls.

Run the seven questions and the answers are clean. The cash recipient is the fund, which uses the draw to pay for an investment or expenses. The obligor is the fund, often with parallel funds and feeder vehicles joining as borrowers or guarantors. Recourse runs to the fund and its call rights: LPs are not borrowers, but their obligation to fund calls is exactly what the lender relies on, which is why lenders may ask investors to acknowledge the facility. The lender ranks ahead of every other use of called capital while a balance is outstanding, and there is no dilution, only interest and fees that the fund, and therefore its LPs, pays.

The Borrowing Base and the Limits That Bind

How much the fund can draw is set by a formula rather than by a single loan amount. The lender does not advance against every LP equally; it sorts investors by credit quality and applies an advance rate to each group's uncalled commitments.

Borrowing Base (Fund Finance)

The amount a fund may borrow under a subscription line at any time, calculated by applying advance rates to the uncalled commitments of investors the lender has approved. Investors that default, transfer their interests, or suffer a credit event drop out of the calculation, shrinking availability even if the facility size is unchanged.

A real facility shows the shape. The 2022 annual report of NC SLF, a registered closed-end fund advised by Churchill Asset Management, describes a revolving credit facility from Wells Fargo of up to $100 million, with a borrowing base calculated on the unfunded commitments of investors Wells Fargo had approved for inclusion. It priced at the Secured Overnight Financing Rate (SOFR) plus 2.00% with a 0.25% unused fee, its maturity had just been extended to December 2023, and $11 million was drawn at year-end. What any fund can actually draw is the lowest of three numbers, the last of them set by its limited partnership agreement (LPA):

Here $a_i$ is the advance rate for investor group $i$ and $U_i$ that group's uncalled commitments. The third term comes from the fund's own documents: the ILPA model allows borrowing only for periods under six months pending drawdowns, capped at the lesser of a bracketed 15% of total commitments and the remaining commitments.

The example explains the whole map in miniature. Early on, the constraint is contractual; later, the collateral is simply running out, which is when a fund needs a product that can see its portfolio.

Uses, Tenor, and the Disclosure Rules

GPs use subscription lines for three ordinary purposes. They bridge calls so a deal can close before LP cash arrives, they smooth calls into fewer and more predictable notices, and they give sellers certainty that the fund can pay at closing without waiting out a drawdown notice period, which the ILPA model sets at a minimum of ten business days. The lines are short-dated and renewed: NC SLF's roughly one-year term and extension are typical of the product's rhythm, and ILPA's disclosure list asks for each facility's term expiration and renewal option. The side effect is the lift to the internal rate of return (IRR) from paying for deals before LPs' money is outstanding, worked through in reading a fund track record, and the reason both LPs and the Securities and Exchange Commission (SEC) care how the line is used.

ILPA's response came in two steps. Its 2017 guidance suggested parameters of 15% to 25% of uncalled capital and a maximum of 180 days outstanding, and its June 2020 subscription line guidance added quarterly disclosure: facility size and balance, each LP's unfunded commitment financed through the line, average days outstanding, and net IRR with and without the facility. These are recommendations. The binding rule is narrower: the SEC staff's marketing rule FAQ of February 2024 says an adviser that shows gross IRR without the effect of subscription facilities cannot show net IRR with it.

The LP's side of that problem, reserve planning around delayed calls, belongs to capital calls and the LP cash-flow problem.

As commitments are called, the borrowing base shrinks while the fund's investments grow. A lender that wants to keep financing the fund has to accept a different kind of risk: portfolio value in private companies rather than the investor credit of pension funds and insurers.

Hybrid Facilities for the Middle Years

A hybrid facility looks at both pools at once. It suits funds that still have meaningful uncalled capital but already hold a portfolio, a combination common among secondaries funds and funds of funds, which buy seasoned assets while their own investors are still funding, and among continuation vehicles. Houlihan Lokey's study of 2025 continuation funds found unfunded commitments in more than 90% of them, at a median of 17% of implied NAV, alongside a portfolio that exists from closing.

Hybrid Facility

A fund-level credit facility secured on both the fund's uncalled investor commitments and its portfolio investments, with borrowing capacity drawn from each. As commitments are called, the facility relies increasingly on the portfolio, which lets one facility serve a fund from its investment period into its harvest years.

Hybrids are negotiated harder than either parent product because the lender must diligence two collateral pools: investor credit quality on one side, portfolio concentration and valuation on the other. A covenant may test both a borrowing base and a loan-to-value (LTV) ratio, and the fund documents must permit borrowing against the portfolio, which many were not drafted to do. The transition is the product's selling point: one set of documents, one lender relationship, and no refinancing gap between the day the subscription line would have run dry and the day a NAV facility could be signed.

NAV Facilities Late in the Life

A NAV facility is the late-life answer: financing whose size and repayment depend on the portfolio rather than primarily on uncalled commitments. The security is usually indirect: the fund's equity in the holding vehicles that own each company, plus the accounts into which distributions flow, rather than liens on the operating businesses. The borrower is the fund or a special purpose vehicle (SPV) below it, and recourse is generally limited to that entity and its assets. The cash can go in two directions, down to portfolio companies for follow-on investment or defensive support, or out to LPs as a distribution, and that second route is where the controversy sits.

The consent question is where an advisor earns its fee. A borrowing clause written for subscription lines, like the model's six-month limit tied to pending drawdowns, may not reach a multi-year loan against the portfolio, as the LPA article explains clause by clause. LTV levels, pricing, the effect of borrowed distributions on distributions to paid-in capital (DPI), recallability, and ILPA's 2024 recommendations on LP approval are covered in NAV lending in practice.

Two parts of the map sit outside the fund's own balance sheet, at the management company and at the investor, and confusing them with fund borrowing is a common interview slip.

GP-Level Financing at the Management Company

GP-level financing lends to the manager rather than the fund, with the firm's own income and fund positions as collateral; it is defined in GP stakes explained, where it is compared with selling a stake. The cash recipient is the management company or its owners, often to fund a larger GP commitment or to buy out a retiring partner. The manager is the obligor, the lender ranks ahead of the firm's owners, and nobody is diluted, which is the whole appeal relative to a stake sale.

The lender base overlaps with NAV lending. 17Capital's July 2025 announcement of a $5.5 billion final close for its Strategic Lending Fund 6 describes capital for management companies to fund larger GP commitments, growth, consolidation, and succession, run alongside a separate credit program of NAV loans to buyout funds, and names management companies, funds, and institutional investors as borrowers. One lender can therefore sit on three layers of the map at once.

LP-Level Financing and Secondary Buyers

The investor layer has its own products. An LP that wants cash without selling can borrow against its fund interests, pledging them to a lender; since the ILPA model states that interests may not be pledged except in compliance with the partnership agreement, the GP's consent is usually part of the process. The LP is the obligor and cash recipient, the fund itself owes nothing, and the lender ranks ahead of the LP only in that LP's own portfolio. The lender is repaid from the distributions on the pledged interests, so it looks closely at the unfunded commitments attached to them: those calls still fall on the LP, and a borrower that cannot meet them risks default remedies that would impair the collateral.

How a seller should value that deferral is set out in deferred payments and structured pricing tools. Buyers also borrow at their own fund level, often through NAV or hybrid lines secured on the fund interests they have bought, and that buyer leverage changes what they can bid, a topic developed in leverage in secondaries. The table below collects the answers to the seven questions for every product on the map.

The lender universe splits roughly along the collateral line. Subscription lines are mainly a bank product, because their risk is the credit of large institutions, the kind of exposure banks already underwrite every day. A Boston Fed supervisory note of February 2025 estimated that large US banks' fund-level loan commitments to private equity and private credit funds reached about $300 billion by the third quarter of 2023, up from less than $10 billion in 2013, and, citing Fitch, noted that defaults on these loans had historically been low and traced to isolated fraud rather than systemic stress.

Banks, Specialist Lenders, and Insurers

Portfolio risk draws a different crowd. Specialist NAV lenders such as 17Capital, founded in 2008 and now in a strategic partnership with Oaktree, lend against the portfolio itself, and large credit managers have moved into the same market, part of the wider expansion described in this primer on private credit. Insurers participate directly and through rated structures; Haynes Boone's 2026 survey summary put it plainly, saying private credit lenders, insurance companies, and structured vehicles are now core participants rather than marginal ones.

That split matters for an advisor because each lender type trades cost against flexibility differently. A bank may offer the lowest margin with tighter covenants and a shorter commitment; a specialist fund may accept more concentration or a longer tenor for a higher coupon. Comparing them is less like reading bids on a price and more like comparing credit agreements clause by clause.

Running the Lender Process

Houlihan Lokey's GP advisory team within Capital Solutions, launched in 2020, structures and places NAV facilities, preferred equity, and firm-level financing for managers. The advisor's value shows in four places: diagnosing which layer of the map the need belongs to, running a competitive process across banks, specialists, and insurers, negotiating covenants and LTV triggers so that a fall in marks produces a cure period rather than a forced sale, and managing the consents of the limited partner advisory committee (LPAC) and the LPs that the fund's borrowing limits require. Who pays for that advice, the fund or the manager, is traced in How PCA Firms Make Money.

Followed to the end, every facility on the map is repaid from LP money in some form. A subscription line is repaid by the LPs' own future calls, a NAV facility by exit proceeds that would otherwise have been distributed to them, a GP-level loan by fees those same LPs pay, and an LP-level loan by the investor's own distributions. The products differ in when that money is spent and who decides to spend it, and the advisor's job is to make that visible to the people whose cash it ultimately is.