Introduction
Liquidity means four different things inside one private equity firm. To the management company, it is cash for a larger general partner (GP) commitment or a way for founders to pass on ownership. To the fund, it is capital for a company or distributions before the last exits. To a limited partner (LP), it is the ability to sell. To a portfolio company, it is new debt. Each product meets one need directly and only appears to meet the others: a distribution funded by a net asset value (NAV) loan puts cash in LPs' accounts while the fund owes it back, and a GP stake pays the manager while LPs receive nothing. A private capital advisory (PCA) team therefore starts from the party, then asks who receives the cash, who owes it, and who bears the cost.
Whose Need Is It? Matching Products to Each Party
With the motives catalogued in why LPs and GPs need liquidity, the diagnosis asks which products deliver to each party in need and which merely sit nearby.
The Manager: GP Commitment, Succession, and Growth
A manager needs a larger GP commitment as funds grow, a succession path, and money for new strategies. Only two products put cash into the management company: a minority GP stake, as equity, and GP-level financing, as debt secured on fees and carry.
Two others only look helpful. A NAV loan raises money the fund owes, not the firm. A continuation vehicle (CV) can crystallize carry, but the Institutional Limited Partners Association (ILPA) continuation fund guidance of May 2023 says that in almost all cases the GP should roll 100% of accrued carry into the new vehicle, so a manager usually leaves a CV with a bigger commitment, not more cash.
The Fund: Follow-On Capital, Distributions, and More Time
A fund needs follow-on capital, distributions before its next fundraise, or more time for an unready asset. A NAV loan and fund-level preferred equity both bring in cash without a sale, the first with a maturity and loan-to-value (LTV) test, the second with a share of upside, as preferred equity and structured fund solutions compares. A CV with fresh capital buys time for chosen assets, and a strip sale sells a slice of every position. One LP's sale, by contrast, changes the investor register without a dollar reaching the portfolio.
That route, explained in the dividend recapitalization explainer, belongs to the company's bankers; the fund advisor's task is to spot a company-level request dressed as a fund problem.
The LP: Cash, Rebalancing, or an Exit
An LP wants cash, room under an allocation target, or an exit. Products serving one LP alone include an LP-led secondary sale, traced in what LP-led secondaries are, borrowing against its own interests, and, for a large portfolio, the securitization in collateralized fund obligations and rated note feeders. A tender offer lets an LP sell at a price the GP's process sets.
A CV sits in between: a selling LP gets cash at a price set in a process the GP runs on both sides, which is why the safeguards in conflicts of interest, fairness opinions, and the ILPA guidance exist.
The Master Comparison: Who Receives the Cash and Who Bears the Cost
The candidates are then compared on the seven questions the fund finance map applies to borrowing, extended to the equity products and sales that compete with it. Two questions do most of the separating.
- Obligor
The party legally bound to repay or perform an obligation. A NAV loan's obligor is the fund or a vehicle below it and a GP-level loan's is the management company; equity products such as a GP stake or preferred equity have none, because nobody owes the holder a fixed sum.
An obligor's lender cannot always reach everything the obligor owns. A NAV loan made to a special purpose vehicle (SPV) below the fund usually stops at that vehicle and its pledged assets; the LPs are reached only indirectly, through recall rights.
- Recourse (Fund Finance)
The extent of a lender's claim beyond the assets pledged to it. A full-recourse lender can pursue the obligor's other assets if collateral falls short; a limited-recourse lender is confined to the pledged collateral, such as the equity of a portfolio holding vehicle.
The table adds one column, who bears the cost, because it is often not the party receiving the cash.
| Product | Cash goes to | Cost borne by | Obligor | Security and recourse | Priority | Key consents | Dilution |
|---|---|---|---|---|---|---|---|
| GP stake | Firm or selling owners | Current and future partners | None | None; protective rights | Shares with owners | Fund LPA change of control | Permanent share of fees, carry |
| GP-level loan | Management company | Manager's owners | The manager | Fees, carry, GP interests | Ahead of owners | Lender and owners | None |
| LP secondary sale | Selling LP | Seller, via discount | None | None; a sale | Not applicable | GP transfer consent | Seller exits |
| Tender offer | Tendering LPs | Tendering LPs, via price | None | None; a sale | Not applicable | Each LP elects | None for stayers |
| Continuation vehicle | Selling LPs | Sellers via price; rollers via new terms | None | None; equity | New vehicle's equity | LPAC review, LP elections | Rollers take reset terms |
| NAV loan | The fund | All fund LPs | Fund or SPV | Holding-vehicle equity; limited | Ahead of LPs, behind company debt | LPA limits, LPAC | None; recall risk |
| Preferred equity | Fund or contributing LP | Common holders | None | Waterfall priority only | Ahead of common | LPA, LPAC | Upside via kicker |
| Collateralized fund obligation | Portfolio owner | Owner, as retained equity | The SPV | Fund interests; limited to SPV | Notes ahead of equity | Transfer consent per interest | None; owner keeps first loss |
Debt products name an obligor and leave ownership alone; equity products name none and give away economics; sales create no claim, and the seller pays through the price. Every LP bears a NAV loan's interest, even those who wanted no cash, while only the seller bears a secondary discount; the loan's covenants and recall terms are in NAV lending in practice.
One Manager, One Aging Fund, One LP: An Illustrative Case
An illustrative mid-market manager is raising Fund VI at $2.5 billion, where LPs expect a 2% GP commitment of $50 million, against $30 million in Fund V; its founders are in their sixties. Its Fund III, in year eleven, holds five companies with $900 million of NAV: four should exit within two years, and one needs $70 million for an add-on acquisition. A pension with about $150 million of NAV across Funds III to V is over its private equity target.
| Party | Need | Tempting but misdirected | Matched product | Cost borne by |
|---|---|---|---|---|
| Manager | $20 million more commitment; succession | Fund III CV to crystallize carry | Minority GP stake, mostly primary | Current and future partners |
| Fund III | $70 million follow-on | Larger NAV loan that also funds a distribution | $70 million NAV loan for the add-on | Fund III LPs, via interest |
| Pension | Cut about $150 million of exposure | Waiting for NAV-funded distributions | LP-led sale of its three interests | The pension, via the discount |
The facility, under 8% of NAV, is repaid from the four exits; upsizing it for a distribution would have handed the pension a small, recallable slice while it kept every interest. The sale is the real exit: at an illustrative 88% of NAV it raises about $132 million, gives up about $18 million of reported value, and passes the unfunded commitments to the buyer.
The mandates still interact: the sale needs the manager's transfer consent, and new GP ownership must clear the facility's change-of-control terms.
Four Mistakes That Solve the Wrong Problem
The recurring errors share one root: choosing a product first and naming the party second, so the structure answers a question nobody at the table asked.
Solving the Wrong Party's Problem
A GP facing LP pressure reaches for a NAV-funded distribution when only a few LPs want out, a need tender offers or LP-led sales meet at the sellers' cost alone. Equally, a founder's succession problem gets a CV, which moves an asset but no ownership of the firm.
Confusing Liquidity With Value Creation
Liquidity changes timing and ownership, not value. Borrowed distributions lift distributions to paid-in capital (DPI) with nothing sold, rolled CV assets are worth what they were the day before, and a GP stake prices the buyer's return into today's cash. Only capital put to work in companies, like the add-on above, changes what they produce.
Ignoring Consents and ILPA Guidance
Each product has its own gate: limited partner advisory committee (LPAC) review and elections for a CV, borrowing limits for a NAV loan, and change-of-control clauses in each limited partnership agreement (LPA) for a GP stake. ILPA's 2024 NAV guidance adds LPAC approval whenever a facility funds a distribution; that is best practice, not law, but the LPAC will have read it.
Stacking Solutions
A NAV loan followed by a CV on the best asset strips the lender's strongest collateral, unless CV proceeds repay the loan before any LP sees them. A GP stake beside GP-level debt puts two claims on one fee stream. The Financial Stability Board's May 2026 report on private credit vulnerabilities describes leverage in private credit at portfolio companies, funds, the sponsor level, and investor financing, and warns that this layering may amplify losses under stress.
Every row of the master table puts a cost somewhere: a discount, a share of future economics, or interest and a senior claim. No row delivers cash with no obligor, no dilution, and no discount. That missing row is the fact worth keeping: when a proposal seems to fill it, the cost has moved to a party not in the room.
