Executive Summary

Net asset value (“NAV”) credit facilities continue to grow in popularity, not only with traditional private equity funds, but also with family offices. NAV credit facilities offer several benefits to both family offices and lenders, but parties should carefully consider the following to avoid potential complications:

• Structure of the NAV credit facility
• Collateral and borrowing base calculations
• Transfer restrictions of the underlying assets

Background

Family offices are legal structures established by high-net-worth families to manage wealth and provide other services, including tax, wealth, and estate planning. Such family offices invest in a broad range of assets, including real estate, private equity and venture capital interests, marketable securities (e.g., fixed income or listed equities), and other alternative investment strategies. To finance these investments, family offices often require access to credit facilities that are tailored to their unique needs and strategies.

Like private equity funds and institutional investors, family offices are increasingly seeking to establish NAV credit facilities, including to fund investments and operating expenses. A NAV credit facility is a term or revolving credit facility in which a lender provides financing to a borrower, with the amount of loan availability being based on the net asset value of the borrower’s portfolio of investments. Under a NAV credit facility, the lender may seek to receive a security interest directly over the family office’s investment assets (e.g., a pledge of interests in a subsidiary vehicle established to hold the investments or a securities account holding such assets) or a security interest that is merely supported by those assets (e.g., a pledge of deposit accounts into which investment proceeds are paid). The collateral pool in a transaction involving a family office borrower will vary on a deal-by-deal basis depending on an analysis of the family office’s structure and the nature of...