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Key Takeaways

• Fund financing markets have shifted toward borrowers due to increased capital supply and softer demand following recent banking disruptions.
• Competition among lenders has led to lower pricing, improved terms, and greater flexibility for fund managers seeking financing.
• NAV lending is gaining traction as a strategic tool for extending investment timelines and supporting portfolio growth.
• Institutional investors entering the space have expanded available capital beyond traditional banking sources.
• Borrowers now benefit from more structured and competitive deal processes that resemble leveraged finance markets.

Zac Barnett, attorney and co-founder of Fund Finance Partners, LLC, brings nearly two decades of specialized experience in fund financing, private equity, and commercial lending. A Chicago-area lawyer based in Hinsdale, Illinois, Mr. Barnett previously spent more than fifteen years at Mayer Brown, LLP before founding Fund Finance Partners in 2019. He has closed more than 500 lending transactions representing loan commitments in the range of $75 billion, earning recognition from Chambers USA and the IFLR1000. Mr. Barnett has authored or co-authored nearly 50 thought pieces on fund financing topics and has presented at numerous industry forums, including the Fund Finance Association Annual Symposium, which he co-founded in 2011.

His grounding in NAV lending and subscription credit structures makes his observations on the current borrower-friendly financing environment especially instructive.

Fund Financing Enters a Competitive, Borrower-Friendly Phase

The September, 2025 Private Funds CFO article “A Borrower’s Market” examines the dynamics of fund financing and supply and demand in the wake of a past regional banking crisis. In 2023, Citibank withdrew from the fund finance space, and several major fund financing players collapsed, leaving the industry in a tailspin. However, the market has demonstrated surprising resilience, with many funds finding new homes and Citigroup aggressively reentering the market and increasing exposure.

The market now reflects a surplus of available capital alongside softened demand driven by prolonged financing timelines. This imbalance has shifted leverage toward borrowers, resulting in tighter pricing and more flexible terms that expand access for general partners seeking financing.

Moving beyond banks, more institutional investment funds have also entered the space. As Fund Finance Partners’ cofounder and managing director Zac Barnett notes, oversupply in the market has reduced the prices of sublines for consecutive quarters, creating a deepened capital supply.

In the broader market, interest rates have retreated from past highs, geopolitical concerns have consolidated investment flow into secure channels, and pricing is now moving within stable, normalized bands. Net asset value (NAV) credit facilities that were buffeted by high interest rates are witnessing increased demand. NAV loans look into investments underlying a fund as a basis for extended credit and are often utilized in financing real estate, infrastructure, and buyout (M&A)/private equity funds.

According to one industry leader, some $3 trillion is locked into global buyout assets across the globe, representing 29,000 companies, and much of this is facilitated through NAV vehicles. Reasons why financial managers are increasingly turning to NAV include boosting investments in a specific existing portfolio and directing funds in ways that support accretive mergers & acquisitions (M&A).

A common use of NAV financing arises when fund managers seek to continue creating value within existing portfolio companies rather than exiting under unfavorable market conditions. By accessing NAV facilities, managers can deploy additional capital to support growth initiatives and preserve performance objectives while delaying an exit.

Another use of NAV is to provide assurance that funds are fully invested. In the past, GPs began investing in a successor fund when the existing fund was 75 percent invested. The last 25 percent was reserved for add-ons. As a result, funds were often only around 80 percent invested, though fees were charged on the full subscription. This led to excessive fees for investors and affected gross-to-net performance. NAV bridges the gap in final liquidity and brings each fund’s invested amount to 100 percent.

Another borrower-friendly element of the current NAV landscape involves greater competition in the NAV space. Supply is robust, and transactions are increasingly structured in ways that mirror traditional leveraged finance, with competition. This involves sponsors circulating term sheets with offers in advance, hoping to attract a wide array of lenders, from banks to private equity. Such competitive terms have new flexibilities, and contracts carry lower costs, which benefits those borrowing money.

The bottom line is that fund financing with NAV lending, far from being on life support, is entering a new era. It is an emerging conduit for the creative types of loans that enable major deals, whether real estate, shoring up funding, or mergers & acquisitions to occur.

FAQs

What does a borrower-friendly fund financing market mean?

A borrower-friendly market means that fund managers and general partners have more negotiating power when seeking financing. This often results in lower interest rates, better terms, and more flexible structures. It typically occurs when there is more capital available than demand for loans.

Why has fund financing shifted in favor of borrowers recently?

The shift is largely due to an oversupply of capital combined with reduced demand for financing. Market disruptions, including the exit and return of major banking players, have also reshaped competition. As a result, lenders are offering more attractive terms to win deals.

What is NAV lending and why is it important?

NAV (Net Asset Value) lending allows funds to borrow against the value of their underlying portfolio investments. It provides liquidity without requiring immediate asset sales, which is useful in uncertain markets. This flexibility helps fund managers continue growing investments and optimizing returns.

How does increased competition among lenders benefit borrowers?

Greater competition encourages lenders to offer better pricing and more borrower-friendly terms. Fund managers can compare multiple offers and negotiate more effectively. This dynamic leads to more customized and efficient financing solutions.

What role do institutional investors play in fund financing today?

Institutional investors are increasingly entering the fund financing space, adding new sources of capital. Their participation reduces reliance on traditional banks and increases overall market liquidity. This broader capital base contributes to the current borrower-friendly environment.

About Zac Barnett

Zac Barnett is a co-founder and managing director of Fund Finance Partners, LLC, a Chicago-area fund finance consultancy established in 2019. He spent more than fifteen years at Mayer Brown, LLP and holds a juris doctor from Northwestern University School of Law. Recognized by Chambers USA and the IFLR1000, Mr. Barnett has closed more than 500 lending transactions and authored nearly 50 articles on fund financing topics and related regulatory developments.