Fund finance has passed $1tn, but beneath the headlines, liquidity is scarcer than it looks, argues Alex Branton (pictured), chief investment officer at Nodem Capital…
Fund finance has outgrown its niche.
In April 2026, Moody’s Ratings reported the market had passed $1tn (£744bn); Haynes Boone’s 2026 annual report puts it between $1.25tn and $1.75tn. Net asset value (NAV) financing has moved to the mainstream, with 2025 the highest deal volume on record and most lenders expecting further growth in 2026. Beneath those headlines, though, the market for liquidity is far less liquid than it looks.
The demand is structural, not cyclical. Distributions have been depressed for four straight years; Bain & Company puts payouts at roughly 11 per cent of NAV, against a 29 per cent average between 2014 and 2017, with some $3.8tn tied up in around 32,000 unsold companies. Yet specialist capital is thin: even in secondaries, only an estimated one to two per cent of private-markets NAV trades in any given year. The plumbing is narrower than the growth story suggests.
It is also lopsided. The largest non-bank lenders are built for scale, and the bank desks typically write facilities of $200m, $300m and above, secured against conventional buyout portfolios. That is rational unit economics, but it concentrates the whole industry on the same large, brand-name funds, and the predictable result is competition on price. Rede Partners reports NAV spreads compressed by around 40 basis points last year, with larger buyout deals now converging on a four to seven per cent margin and the largest credits often priced at the very bottom of that band.
Almost no one is built for the other end. A family office, a mid-sized general partner, a holding company, or a limited partner with a portfolio under $2bn finds the large platforms too big, too slow, or too rigid: minimum ticket sizes screen them out, and standardised credit boxes cannot accommodate concentrated, multi-strategy, or non-standard collateral. Nodem Capital is one of the few lenders that sit deliberately in this sweet spot, writing facilities of roughly $20m to $80m for the borrowers that the scaled platforms pass over.
It is worth being precise about what these loans are for. Since ILPA’s 2024 guidelines, NAV proceeds are used far less to accelerate DPI and overwhelmingly for accretive purposes. Proskauer’s data show that follow-on investments are now the single largest use of proceeds; the great majority of facilities fund offensive, value-creating activity, follow-ons, add-on merger and acquisitions, and refinancing of expensive asset-level debt, rather than dressing up distributions. Used this way, NAV finance complements a genuine exit rather than substituting for one.
That distinction matters for credit quality, and it is where doing the work pays. Smaller, complex portfolios demand more diligence, not less. We underwrite each portfolio on its merits ourselves, applying a conservative, repeatable process to assets a standardised screen would reject.
The growth numbers are real; the conclusion drawn from them is too often wrong. The institutional end of NAV lending is crowded and compressing, while the lower-mid market remains genuinely underserved. As the liquidity squeeze runs into 2026 and beyond, the funds and portfolios overlooked today will need answers, and the specialist capital that understands them will matter more, not less. That is the gap Nodem is here to fill.
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