Zac Barnett: What Fund Sponsors Should Know Before Using Asset Value Loans

Zac Barnett is a Chicago-area attorney and fund finance debt advisor with extensive experience in commercial lending, private equity, and fund finance. As co-founder of Fund Finance Partners, LLC, Zac Barnett works with private fund sponsors on fund finance planning, lending structures, and documentation processes that support efficient fund formation and financing outcomes. Over the course of nearly two decades in the legal and finance sectors, he has represented both lenders and borrowers in a broad range of private equity, hedge fund, and real estate fund transactions. His background includes developing financing platforms and advising on complex lending facilities tied to investment fund structures. With experience spanning more than 500 lending transactions representing approximately $75 billion in loan commitments, Barnett brings substantial insight into the considerations fund sponsors face when evaluating asset value loans and other fund finance solutions.

What Fund Sponsors Should Know Before Using Asset Value Loans

An asset-value loan is a loan secured by the value of a fund’s investments rather than by uncalled investor commitments. In fund finance, this usually appears as a NAV facility, with NAV meaning net asset value, or the value of the portfolio after liabilities are taken into account. For a sponsor, the practical question is when this financing aligns with the fund’s asset and liquidity needs.

The distinction becomes clearer when a sponsor compares this facility with a subscription credit facility. While a subscription facility relies primarily on investors’ capital commitments and the fund’s right to call that capital, an asset-value loan relies on the investments the fund already holds.

That difference matters once the portfolio provides a lender something to evaluate. Sponsors use this facility to offer interim liquidity, support portfolio companies, or bridge a timing gap without selling an asset. The real issue is whether the investments can support borrowing on workable terms.

When a lender reviews this type of loan, they go beyond the fund’s headline valuation. They examine the underlying assets: what the fund owns, how liquid those assets are, and how well they support repayment. Portfolios with clear value and fewer transfer restrictions often receive different credit responses than those with more restricted positions.

Concentration then becomes a separate concern inside that analysis. If too much value is concentrated in a small number of investments, the lender may see the portfolio as more exposed to a single problem or to delayed realization. That can affect the advance rate, meaning the percentage of portfolio value the lender will lend against, and can also tighten borrowing-base treatment or other protections.

Collateral design matters for the same reason. NAV facilities do not all use the same collateral package, and lenders may take different approaches depending on the assets, holding structures, and legal constraints involved. One proposal may rely on a simpler pledge and tighter limits, while another may use a more layered structure with additional covenants or reporting requirements.

That variation explains why proposals differ, even when the borrower and requested amount stay the same. Some lenders prefer certain asset types. Others focus more on diversification, cash flow visibility, covenant structure, or documentation strength. Therefore, a sponsor should expect real differences in economics, structure, and ongoing obligations across bids.

Preparation can improve that process. Before going to market, a sponsor is in a stronger position when portfolio information is organized, valuation support is clear, and internal priorities are well-defined enough to answer lender questions efficiently and compare term sheets beyond headline pricing. That preparation makes lender interest easier to evaluate in practical terms.

The facility’s behavior after closing deserves equal attention. Borrowing-base tests, concentration limits, valuation changes, and covenant triggers can reduce availability or lead lenders to require added protections if performance weakens. A structure that looks flexible at signing may feel very different once the fund has to operate within those mechanics over time.

An asset-value loan can help a fund unlock liquidity, but it changes the post-closing responsibilities. Once the facility is in place, portfolio valuations, concentration levels, and reporting cycles become ongoing operations, and compliance with lender requirements is no longer a one-time deal point. Sponsors who recognize this shift early are better positioned to use the facility as a controlled financing tool, with clearer expectations and less

avoidable pressure after closing.

About Zac Barnett

Zac Barnett is the co-founder of Fund Finance Partners, LLC, where he advises private fund sponsors on fund finance strategy and debt solutions. He previously spent 17 years at Mayer Brown, LLP, representing lenders and borrowers in private equity, hedge fund, and private credit transactions. Barnett earned his law degree from Northwestern University School of Law and a marketing degree from Elmhurst College. He is also a published author on fund finance topics and an active participant in industry organizations and conferences.