By Mohith Sondhi, Senior Director at OakNorth

The evolution of NAV financing

Once seen as a stopgap solution when distributions were constrained, NAV financing has evolved into a strategic tool that funds are integrating more permanently into their capital structures. Over the past year, we’ve seen more lenders enter the space, increasing liquidity and leading to tighter pricing. At the same time, structures have continued to evolve, reflecting the growing demand from funds for NAV financing solutions that align with their long-term strategies.

Despite this increased supply, a clear gap remains in the mid-market, where funds struggle to access tailored NAV financing at scale. More club deals and syndicated transactions are emerging, but the need for flexible capital solutions persists.

Market optimism and macro factors shaping 2025

The outlook for fundraising in 2025 is more optimistic. Distributions, which were constrained in 2023 and early 2024, are beginning to normalise. The market tightness that previously drove demand for NAV financing has eased, but the underlying need for flexible capital remains strong. Funds are increasingly recognising the strategic benefits of NAV financing when executed properly.

A key driver behind this shift is the broader macroeconomic environment. In 2024, uncertainty around interest rates, inflation, and geopolitical tensions weighed on the market. However, as we enter 2025, we have greater macroeconomic certainty, feeding into renewed business optimism. While challenges remain, the easing of headwinds has created an environment where growth and innovation in private equity financing can accelerate.

Where NAV financing fits in 2025 and beyond

As we continue to see an increase in sub lines and new fund launches, GP financing requirements are also growing. The private equity industry is no longer viewing NAV financing as merely a response to liquidity constraints—it’s now a permanent fixture. What was once a tool used when exits were stuck is now recognised as a versatile product that provides value in any market cycle.

More banks and credit funds are entering the space, reinforcing NAV financing’s long-term role in fund finance. This competition will drive further innovation in structures and pricing, benefiting funds looking for flexible financing solutions. At OakNorth, we continue to focus on the mid-market segment, ensuring that these funds have access to the capital they need to grow and scale.

Closing thoughts

The NAV financing market is evolving, and 2025 presents new opportunities for funds to leverage this tool strategically. With increasing liquidity, a more stable macroeconomic backdrop, and a recognition that NAV financing is here to stay, we expect continued growth and innovation in this space.

At OakNorth, we remain committed to supporting mid-market funds in the UK & US with tailored financing solutions that enable them to unlock liquidity, pursue strategic opportunities, and navigate an evolving market landscape. If you’re attending the FFA Symposium in Miami and want to discuss how we can collaborate, let’s connect.