Secondary sale versus portfolio financing: selling or borrowing

A family office that needs cash from a private fund portfolio has two routes. It can sell interests on the secondary market, accepting a discount in exchange for certainty and a clean exit. Or it can borrow against the portfolio, keeping the interests and their future distributions in exchange for interest, covenants and a repayment date. Jefferies' July 2026 review put average LP portfolio pricing at 87% of NAV in H1 2026, so the cost of selling is roughly 13% of value given up at once. The cost of borrowing is spread over time and depends on what the portfolio does. Neither is cheaper in all cases; the answer turns on the seller's view of the NAV and on how long the money is needed.

What each route involves

A sale is a transfer of ownership. The process, described in how selling an LP interest works, takes one to two quarters, needs GP consent and ends the seller's exposure to the interests sold. The proceeds are final. Ropes & Gray's H1 2026 update notes that about a third of LP-led deals now include deferred payment, most settling within 12 months, so even a sale may not deliver all the cash at closing.

A portfolio loan, often called a NAV facility when made to a fund and sometimes to a holding company or family investment vehicle, is secured on the fund interests or the entity that holds them. The borrower keeps the interests, continues to receive distributions and uses some or all of them to service and repay the loan. The lender advances a fraction of NAV, applies covenants tied to loan-to-value, and may require distributions to be swept to repayment above a threshold. The mechanics are described in NAV loans for family offices explained and the covenant detail in cash sweeps, LTV triggers and covenants.

The borrowing market has grown. 17Capital, quoted by Alternative Credit Investor, estimated NAV finance at $44bn in 2023 and expects $145bn by 2030. Haynes Boone's 2026 Fund Finance Annual Report found 72% of respondents expect moderate to significant growth in institutional NAV activity in 2026 and that NAV deal volume in 2025 was the highest the firm had seen.

An illustrative comparison

The example below is constructed for this article. The figures are assumptions, not market data, except where a source is cited. It is simplified: it ignores tax, fees other than interest, and the detail of covenants.

An office holds a diversified buyout fund portfolio with NAV of $50m and needs $10m of cash for three years. Assume the portfolio's NAV grows at 8% a year and distributes 10% of opening NAV each year, in line with the roughly 10% distribution yield Ropes & Gray reported for H1 2026.

Route A: sell interests. At 91% of NAV, Jefferies' H1 2026 buyout average, raising $10m requires selling $11m of NAV. The office keeps $39m of NAV and gives up all future growth and distributions on the $11m sold.

Route B: borrow. Assume a $10m loan at 20% loan-to-value, an all-in cost of 10% a year, interest paid from distributions and the principal repaid at the end of year three from distributions and, if needed, a partial sale.

Illustrative only. Under these assumptions the borrower ends with roughly $10m more NAV and about $9.5m less in net cash received over the period, which nets to about $1m in the borrower's favour, roughly the discount avoided less the interest paid. Change the growth assumption and the result moves: if the portfolio is written down 15% in year one instead of growing, Route A has locked in 91% of the old NAV on the portion sold, while Route B carries the full write-down, a higher loan-to-value and possibly a covenant breach.

How to read the comparison

The sale is a bet that the discount is larger than the risk-adjusted value the office would otherwise capture from holding. It suits an office that doubts the NAV, wants to reduce private markets exposure permanently, or needs the cash with no repayment obligation attached. Pricing data in secondary pricing by strategy shows the cost is small for diversified buyout and large for venture and real estate.

The loan is a bet that the portfolio will outperform its cost of debt. It suits an office that believes in the NAV, needs the money for a defined period, and can tolerate leverage on illiquid assets. Its risks are the ones a sale avoids: interest that accrues whether or not distributions arrive, and loan-to-value triggers that bite when valuations fall. A loan also leaves the office with the same slow-distributing portfolio, plus a repayment date.

A combined approach

The routes are not exclusive. An office can sell the interests it is least confident in and borrow against the rest, or borrow now and sell later if distributions do not arrive. Both are easier for diversified buyout portfolios than for concentrated or venture-heavy ones, because buyers and lenders price the same NAV uncertainty. The useful discipline is to price both routes on the same portfolio, under the same scenarios, before deciding which cost to bear.