Do NAV loans really destroy the raison d’être of limited partnerships?

NAV loans for LP distributions were a hot topic – some might say even a spicy one – at an industry gathering in Paris this week.

By Adam Le

“Destroy” may be a strong word, but that was how one participant at an industry conference this week described the effect that NAV financings?have on the traditional limited partner fund model when they are used only to deliver distributions back to LPs.

Speaking on a panel about liquidity at IPEM Paris, Eric Deram , managing partner and chief executive of investment firm Flexstone Partners , walked an audience through the reasons why he doesn’t like NAV loans – and he didn’t mince his words.

“I don’t see any situation where NAV financing is beneficial to anybody other than the GP, especially if the aim of the NAV financing is to generate liquidity,” Deram said. Some of Flexstone’s LPs are institutional investors who can borrow money at 1-2 percent. A Swiss pension fund, for example, can borrow at even lower than that, he added. A GP who borrows at 10 percent using a facility that takes security on all the assets in a fund is substantially...

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