There’s a facility for that: fund finance as a liquidity toolkit

Liquidity has become the defining question in Australian private markets. Holding periods are longer, exits are slower and distributions remain subdued. For general partners (GPs), the challenge is a familiar one: how do you return capital to limited partners (LPs), or back your best assets, without selling at the wrong time?

Increasingly, the answer lies in fund finance. Once little more than a capital call bridge, it is now a toolkit that can be matched to each stage of a fund’s life. In short, there is now a facility for most liquidity needs and, in our experience, lenders are keen to talk. The catch is that the toolkit works best for those who plan early and govern it well.

Why now?

The pressure on distributions is real. MSCI reported an annualised private equity distribution rate of 9% and negative net cash flow of US$16.5 billion across its benchmark dataset in the first half of 2026. Secondaries volume for the same period was estimated at between US$118 billion and US$124 billion,^[1] a clear sign of demand for liquidity. Fund finance has grown alongside it: reliable market-size figures are hard to pin down, but the Loan Market Association (LMA) describes the market as substantial and still growing.

Regulators are watching too. In June 2026, the Australian Securities and Investments Commission (ASIC) reported on a snapshot survey of 22 managers covering 52 funds and around A$76 billion in assets under management. Aggregate redemption requests were contained, and leverage and line-of-credit use were minimal, but ASIC identified valuation lag, concentration, conflicts and uneven governance and liquidity practices. The Reserve Bank of Australia (RBA) does not presently see a system-wide stability threat from private credit.

Our take: liquidity solutions are welcome, but governance must keep pace.

Start with 2 questions

It is easiest to start with the problem, not the product, by asking 2 questions:

• What liquidity problem is the fund trying to solve? Bridging a timing gap, funding follow-ons or distributions, scaling origination, funding the GP, or creating options at the end of the fund’s life?
• What can actually support the borrowing? Uncalled LP commitments, portfolio net asset value (NAV), a pool of loans, fee and carry streams, or a priority position?

The answer to the second question drives the rest: a lender’s appetite, pricing and terms follow from what supports the borrowing, not just the borrower’s name. In the table below, ‘Typical use’ answers the first question and ‘Lender looks to’ the second.

The toolkit across the fund lifecycle

Subscription lines remain the anchor of the market, but the products are being stacked, not swapped. In the LMA’s 2026 survey of 91 respondents across Europe, the Middle East and Africa, borrower respondents expected their use of subscription lines (52%), NAV facilities (42%) and GP finance (29%) to grow. Subscription lines look ‘up’ to investors, so availability turns on investor eligibility and a reliable, enforceable route to call capital.

NAV facilities look ‘down’ to the portfolio. They are becoming mainstream, but on conservative terms: 84% of responding buyout NAV lenders reported typical starting LTVs of 20% or less (most commonly 11–15%). Notably, no borrower respondent reported using NAV debt in 2025 to make early distributions to LPs. Negotiations increasingly focus on valuation challenge rights, cure mechanics, cash sweeps and disposal controls. Hybrid facilities bridge subscription lines and NAV facilities, provided the switch from commitments to NAV is objective and the same value is not counted twice.

For credit funds, warehouse and back-leverage facilities let managers scale origination without calling equity for every loan. The path may run from a warehouse, through scale, to securitisation, with eligibility criteria, data quality, servicing and concentration limits as the gates at each stage.

Continuation funds: an exit for some, a sequel for others

Continuation funds (or continuation vehicles) have become an increasingly mainstream exit path for GPs, as our colleagues explore in Will the sequel be better than the original? The rise of continuation funds elsewhere in this In Private publication. They can suit a business part way through its value creation plan, where that plan has outgrown the original fund’s remaining life or undrawn commitments. Existing LPs choose whether to sell or roll. At portfolio company level, financing may include a refinancing; at fund level, NAV, preferred equity or hybrid capital. Concentrated or single-asset vehicles will ordinarily need more conservative leverage, tighter controls and a maturity that can withstand a delayed exit.

The bar on process has just been raised. On 20 October 2026, the Institutional Limited Partners Association released final guidance on continuation vehicles. Among other things, it calls for:

• Advisory committee: early engagement with the LP advisory committee and no blanket conflict waivers.
• Price: a competitive process or other independent price validation.
• Time and information: full access to a properly populated data room and generally at least 20 clear business days after LPs receive the final election package (longer for complex deals).
• Disclosure: financing arrangements, costs and their allocation, and the source and structure of the GP’s reinvestment, as third-party funding can reduce the GP’s real ‘skin in the game’.

Our take: the guidance is not law, but financing should now be treated as part of the fairness and alignment analysis, not as a separate workstream.

The Australian angle

The toolkit works in Australia, but local structures need local thinking:

• Trustee borrowers: many Australian funds are unit trusts, so the trustee’s powers, limits on its liability and licensing position need early attention, as does whether the fund is a registered or unregistered scheme.
• Superannuation investors: super funds are often cornerstone LPs. Lenders will look past the headline name to the entity that actually subscribes (which may be a custodian or nominee) and to its approvals, notice and transfer arrangements.
• Security and cash control: registration under the Personal Property Securities Act 2009 (Cth) matters, but practical control of bank accounts usually also depends on arrangements with the account bank.
• Real assets: Australian private credit is comparatively concentrated in real estate. For real-asset funds, asset-level debt, joint venture rights, development costs and cash traps can reduce the value a fund-level lender can rely on.

From 1 July 2027, Financial Services Council (FSC) Standard No. 30 will apply to in-scope FSC Full Members, with earlier adoption encouraged. It is an industry standard, not legislation, but alongside ASIC’s surveillance it raises the bar on governance, valuation, liquidity, leverage, conflicts and disclosure.

Getting it right: what to settle early

The most expensive problems are the ones found late. We recommend settling these well before drawdown:

• Fund document capacity: confirm which entity can borrow, grant security and call capital, and build those powers in at formation rather than repair them under time pressure.
• Side letters and investor arrangements: excuse rights, sovereign immunity, most favoured nation (MFN) elections, borrowing limits and notice requirements can all affect availability.
• Valuation governance: document the methodology, frequency, approvals, conflict controls and lender challenge process, and keep fund reporting values distinct from covenant values.
• Existing debt: asset-level negative pledges, distribution blocks, joint venture consents and intercreditor terms can stop cash or security moving up the structure.
• Use of proceeds and disclosure: funding a value-accretive follow-on is different from accelerating a distribution, and borrowed cash should not be presented as realised value in LP reporting.
• A credible repayment plan: the facility should be repayable even if exits are delayed, without assuming the fund is extended or the debt refinanced. For open-ended funds, borrowing can bridge timing but should not mask a persistent mismatch between asset liquidity and redemption terms.

Looking ahead

In our experience, lenders are keen to engage, and the lender base is broadening to match demand. Banks remain central, with private credit funds, specialist NAV lenders, insurers and capital markets investors adding term and specialist capacity. Rated and securitised structures can open institutional channels, but bring their own disciplines on eligibility, concentration, ratings and reporting. We expect tailored fund finance to become a permanent feature of the market. Structure will matter more than labels: who borrows, what repays the debt, how the lender reaches collateral and cash, and what happens if things do not go to plan.

For GPs and financiers, the message is twofold: financing is available at every stage of a fund’s life, and those who plan for it early and end to end will have more options and fewer surprises. For most liquidity needs, there is now a facility for that.