Catharina von Fickenhagen and Alexandra Clynes (Campbells) provide a practical guide to selecting and structuring the right fund finance solution, offering a side-by-side overview of the two cornerstone products in fund finance: subscription credit and NAV facilities.
Over roughly twenty years, fund finance has moved far beyond simple bridging lines into a sophisticated suite of tools. With the market in 2024 estimated at about US$1.2 to US$1.75 trillion and widely expected to surpass USD2.5 trillion by 20301, it is now one of the fastest-expanding parts of the lending landscape. Sponsors across private equity, real estate, infrastructure and credit strategies routinely use these products to smooth liquidity, enhance returns and manage needs across the life of a fund. Two products anchor that toolkit: subscription credit facilities (often called capital call lines) and net asset value (NAV) facilities.
Although grouped together under the banner of fund finance, the two products differ in security structure/ collateral, timing within the fund lifecycle, documentation approach and lender risk. The lender and borrower universe has also widened well beyond traditional banks and blue chip sponsors to include private credit funds, insurers, family offices and other non-bank providers, alongside a broader range of strategies and vehicle types. Understanding these distinctions is essential when choosing a product, or a blend of products, for a particular fund at a particular time. This article outlines each product, highlights structural and documentation contrasts, notes current market dynamics, and sets out commercial considerations that drive selection.
The subscription facility: leveraging uncalled commitments
At its simplest, a subscription facility is a revolving loan secured by investors’ unfunded capital commitments. Investors commit a fixed amount but fund it over time as the general partner (GP) issues capital calls. The facility permits the fund to borrow in anticipation of, or instead of, a call, giving immediate liquidity to meet investments or expenses.
Credit analysis for subscription lines, therefore, centres on the investor base. Lenders assess investor identity and standing, the enforceability of the call mechanics, and structural controls that route call proceeds to debt repayment. The borrowing base is calculated from the aggregate unfunded commitments of investors that meet eligibility criteria and is often focused on credit quality, concentration and other limits. A diversified roster of strong institutions typically supports higher advance rates and better terms than a concentrated base or one with harder-to-underwrite counterparties.
From a Cayman Islands perspective, the framework for subscription facilities is well established and sophisticated. Exempted limited partnerships are the standard vehicle for closed ended funds and are governed by the Exempted Limited Partnership Act (As Revised) (the ELP Act), which provides a statutory basis for the general partner to issue calls and for security to be granted over those rights. Facility structures typically include security over the fund’s contractual right to call and enforce commitments, interests in designated collection accounts and ancillary rights. As the general partner is usually a direct party to the loan and security documents in these structures, separate general partner acknowledgements are not generally required, although lenders may still seek direct arrangements with key investors in certain cases. Notices to investors are used to perfect and prioritise the security over call rights.
Subscription facilities fit most naturally during the investment period, when uncalled commitments are substantial. As capital is drawn, the borrowing base declines, so these lines are usually short-tenor, revolving instruments. Typical uses include bridging the gap between signing and receipt of call proceeds, consolidating multiple smaller calls, managing foreign exchange on cross-border deals, and, controversially for some investors, deferring calls in a way that can uplift the reported internal rate of return (IRR).
The NAV facility: unlocking value in the portfolio
By contrast, a NAV facility looks to the fund’s assets rather than its investors. It is a loan to the fund or an intermediate entity sized by, and/or secured against, the net asset value of existing portfolio holdings. Lenders therefore underwrite asset quality: what the fund owns, how diversified it is, how it is valued, and the practical routes to realisation to repay the debt.
NAV financing has expanded rapidly in recent years, fuelled by longer holding periods, tougher exit markets and increasingly sophisticated lenders. Global portfolios now contain significant volumes of unrealised value, and sponsors are using NAV lines to create liquidity for follow-ons and other portfolio needs. The market is estimated at around US$100 billion today, with projections of approximately US$350 billion by 2030 following roughly 30% compound annual growth between 2019 and 20232. Many funds relevant to the fund finance market are also entering the wind-down phase, as 2016 to 2019 vintages reach the end of their natural life and slower exit markets extend holding periods. Against this backdrop, Cayman structures often require bespoke security packages reflecting the asset stack, including share charges over Cayman holding companies, security over intercompany receivables and bank accounts, and, where applicable, security over shareholder loans as well as equity.
Borrowing bases and loan-to-value (LTV) covenants in NAV facilities reference reported or appraised portfolio values, subject to eligibility screens, concentration caps and valuation adjustments tailored to asset risk. Valuation provisions are central: lenders usually require periodic valuations under IFRS or US GAAP fair value rules (often audited annually) and set out detailed methods, dispute processes and remedies for value declines.
NAV lines are typically deployed later in the fund life, during harvesting or wind down, once uncalled capital is largely exhausted and a subscription line is less effective. Proceeds may fund follow‑ons, bridge to exits, cover fund level costs or, where appropriate, support distributions ahead of a near-term realisation. They are also prevalent in continuation vehicles and GP-led secondaries and are particularly relevant for evergreen or open‑ended funds that lack unfunded commitments and may permit investor redemptions.
Documentation and structural differences
While both facility types share secured lending fundamentals, their documents diverge to reflect different collateral and risk dynamics.
Subscription facility agreements typically define the borrowing base in detail, setting out who qualifies as included or eligible investors, advance rate formulas, concentration limits and regular reporting of investor lists and borrowing base certificates. Representations and covenants focus on creating, perfecting and maintaining security over call rights, alignment with the partnership agreement (including limits on amending limited partners’ obligations), and priority over call proceeds. Financial covenants are often light because repayment flows from the structural mechanics and investor strength rather than the fund’s balance sheet.
NAV documentation is closer to leveraged or asset-backed lending. Borrowing base provisions address portfolio valuation in depth, including unrealised and partially realised positions, subsequent financings at the asset level and revaluation frequency and methods. LTV tests are key, with cures commonly via prepayment or additional collateral. Security is bespoke and multi‑layered, often spanning several jurisdictions and entities, requiring coordination between lead counsel and relevant local counsel.
Priority dynamics also differ. Subscription lenders typically enjoy a straightforward claim over identified call proceeds flowing through pledged accounts. NAV lenders face a more complex cascade that may include portfolio-level creditors, co-investment vehicles, management fee and carry arrangements and other competing claims on asset value.
Hybrid structures: the best of both worlds
A prominent recent development is the rise of hybrid solutions that blend subscription and NAV features within one agreement or via parallel lines from related lender groups. These structures acknowledge that a fund’s financing needs evolve over time.
In a hybrid, the borrowing base draws on both uncalled commitments and portfolio value, with weightings shifting as the fund moves from deployment to harvesting. Early on, the subscription component dominates; later, as commitments are consumed, the NAV element becomes more significant. The structure preserves continuity of funding and reduces disruption from switching products mid‑lifecycle.
The documentation challenge is to house two methodologies, investor credit and portfolio valuation, within a single construct and to manage their interaction. Security must reach both upstream call rights and downstream asset interests. Where separate lender groups provide different components, intercreditor terms must articulate waterfall priorities with precision.
The expanding universe: new products and new players
Beyond the two core products, the market now offers a broader menu of adjacent solutions, reflecting a shift towards bespoke fund-level financing. Participation has widened on both the borrower and lender sides.
GP and management fee facilities are firmly established, enabling borrowing against recurring revenues such as management fees, carry and GP commitments. Lenders increasingly tranche distinct income streams with tailored terms. Preferred equity has also grown as an alternative to NAV debt: a new special purpose vehicle issues preferred interests that sit junior to debt but senior to common equity, with economics delivered through a bespoke distribution waterfall. This route can offer greater flexibility and lighter covenants than secured loans, though typically at a higher all-in cost, reflecting equity-type risk.
Collateralised fund obligations (CFOs) and rated note feeder structures have gained momentum, particularly with insurance investors seeking rated, investment grade exposure to diversified fund portfolios. KBRA recorded a record 2025 for CFO issuance, totalling about US$26.2 billion across more than twenty deals.3 Broader securitisation of fund finance, including formal ratings of subscription lines by major agencies, is expected to deepen liquidity and attract new regulated investors.4
Back leverage and single asset solutions are also on the rise, providing financing at the individual asset level to bridge to exits or support incremental investment without drawing at the fund level. Investor finance secured against an investor’s interests in one or more funds is another growing niche, serving the expanding HNW and UHNW investor base in private markets.
Perhaps the largest structural change is the ascent of private credit funds as lenders and market-makers. Regulatory capital rules, including the Basel III Endgame reforms, have increased bank costs for some products, creating space for non‑bank providers to offer competitive pricing, flexible terms and bespoke structures, often with lighter covenants and conditions. Insurers have likewise become influential, deploying long-dated capital in creative ways. Partnerships between banks and private credit funds are common, blending bank infrastructure with private credit flexibility. Notably, some managers now also provide fund finance themselves, narrowing the gap between buy-side and sell-side roles.
Credit analysis: two distinct disciplines
Because the collateral differs, lender underwriting and the fund’s due diligence processes take distinct paths for the two products.
For subscription lines, the focus is the investor roster: credit ratings and financials where available, enforceability of calls under the partnership agreement and governing law, and structural protections that ensure call proceeds service the debt. In economic substance, the investor base is the collateral, and its quality and diversity drive pricing, advance rates and capacity. Lenders also scrutinise excuse, exclusion and default mechanics that could affect an investor’s obligation to fund.
For NAV facilities, underwriting occurs at the asset level. Lenders evaluate portfolio quality, concentration and liquidity, the robustness of valuation methods, the sponsor’s realisation track record and structural protections at fund and holding company tiers. The analysis is bespoke and resource intensive, resembling direct lending. This overlap has helped attract private credit and insurers to NAV lending; in some cases, the risk-return profile approaches that of preferred equity rather than senior secured debt.
Commercial considerations: choosing the right product
Selecting between a subscription line, a NAV facility or a combination depends on strategy, stage, investor base, portfolio composition and broader financing objectives.
Subscription lines generally offer the most competitive pricing and straightforward execution, reflecting lower lender risk. Where a fund has a robust, diversified investor base and significant uncalled commitments, a subscription facility provides flexible, cost-effective liquidity and is the natural first step during deployment.
As uncalled capital declines, the subscription borrowing base contracts. NAV financing then becomes the more suitable tool, enabling leverage against the value embedded in the portfolio. Pricing is typically higher, reflecting complexity, collateral liquidity and valuation/execution risks, yet for diversified, high quality portfolios it can efficiently fund distributions, follow‑ons and fund level costs late in the life cycle.
Investor relations also matter. Subscription lines are widely used and generally well understood, though the IRR impact of deferred calls has prompted scrutiny and calls for transparency. NAV financing, being newer and more complex, may require fuller disclosure, especially where proceeds fund distributions rather than growth. Market education and guidance have improved acceptance, and most facilities today support money in uses such as follow‑ons and acquisitions5. Partnership agreement limits on fund level borrowing and security must always be reviewed.
The Cayman Islands dimension
The Cayman Islands continues to be the leading home for many private funds, and both subscription and NAV financings using Cayman vehicles are a regular feature of the market. The jurisdiction offers a flexible, well-tested legal platform. The ELP Act supports security over partnership interests, call rights and related assets, while the Companies Act (As Revised) underpins share security in Cayman holding companies used in many NAV structures.
Advisers must account for each product’s specific requirements. For subscription lines, this includes effective perfection of security over call rights, typically via a combination of partnership agreement provisions, security assignments, account control and investor notices, and careful interaction with amendment, waiver and default provisions. For NAV facilities, attention turns to creating and enforcing share security over holding entities, addressing transfer and encumbrance limits in constitutional documents, and ensuring intercreditor and subordination terms are enforceable under Cayman law.
Conclusion
Subscription and NAV facilities are distinct yet complementary elements of today’s fund finance toolkit. They target different stages, rely on different forms of credit support, and meet different objectives. The 2026 market extends well beyond these pillars: hybrids, GP financings, preferred equity, CFOs, back-leverage and investor finance point to a bespoke, multi-product ecosystem. Participation has also diversified, with private credit funds, insurers, family offices and other non-bank lenders operating alongside banks. With deal volumes up sharply through 2025 and asset-linked solutions taking a larger share, mastering the full toolkit has become essential for sponsors, lenders and advisers. Matching product features to a fund’s specific needs at each stage should maximise flexibility and value over the investment programme.
This publication provides general information only and does not constitute legal advice. Specific transactions require tailored legal advice.
1 Ares Management, The Evolution of Fund Finance (Oct. 2024), available at https://www.ares.com/us/news-and-insights/perspectives/liquidity-solutions-are-you-ready-next-stage-fund-finance-growth and https://insuranceaum.com/sites/default/files/2025-01/Ares-Fund-Finance-White-Paper.pdf.
2 AllianceBernstein, Funding Flexibility: NAV Lending (2024), https://www.alliancebernstein.com/content/dam/global/insights/insights-whitepapers/nav-lending.pdf.
3 DLA Piper, Private Credit Pulse – Q1 2026 (citing KBRA), https://www.dlapiper.com/insights/publications/private-credit-pulse/2026/private-credit-pulse-q1-2026.
4 Fitch Ratings, Subscription Finance Ratings Update: 3Q24 (19 Dec. 2024), https://www.fitchratings.com/research/fund-asset-managers/subscription-finance-ratings-update-3q24-19-12-2024.
5 Institutional Limited Partners Association (ILPA), NAV-Based Facilities: Guidance and Roadmap (25 July 2024), https://ilpa.org/wp-content/uploads/2024/07/ILPA-Guidance-on-NAV-Facilities-2024.pdf.
Catharina von Finckenhagen is a partner in the corporate department of Campbells in the Cayman Islands.
Alexandra Clynes is counsel in Campbells’ corporate department in the Cayman Islands.
