Originally published on Private Funds CFO on August 3, 2026: https://www.privatefundscfo.com/hark-capital-a-fund-finance-strategy-comes-of-age/

‍The NAV finance market has evolved from a niche defensive play to a mainstream asset class, says Hark Capital managing partner and founder Doug Cruikshank.

‍How has the NAV financing market grown over the past few years?

It has been amazing to watch this market scale. We started out in this space 13 years ago, when the market didn’t really exist. We saw an opportunity in the aftermath of the global financial crisis when there were a lot of private equity portfolio companies in need of money, and it has been gratifying to see this market grow into a permanent asset class with myriad use cases in the intervening years.

What are those use cases and how have they changed with time?

In the beginning, we thought about NAV financing as a product for defense – as financing for companies that we viewed as problem children. Typically, the private equity owner still believed in the thesis, but it was not happening as quickly as anticipated and so a little bit of TLC and additional capital was required.

Over time, however, we realized that this didn’t have to be only a defensive play. At the end of the day, this is just money and it can be used in any number of different ways including to fund add-on acquisitions for performing platforms. Those defensive and growth scenarios are what we term “money in” deals. The money from the NAV loan goes into the portfolio company to achieve some form of objective.

We also see “money out” deals, where the financing is used to create DPI. These are the deals that have attracted some negative attention over the years, largely because some sponsors historically sought forgiveness rather than permission from their LPs. This did not go down well with some investor groups and ILPA came down hard on the practice. There is an understanding now that using NAV loans to drive distributions can make sense in some circumstances, but LPs should be asked and not be surprised. Money out deals have always represented a relatively small part of the overall market, but it will be interesting to see how that space develops, with LP consent.

Finally, we are also seeing opportunities to deploy NAV capital in the context of management companies. Nature abhors a vacuum and there has been a vacuum at the management company level, as well, with respect to GP commit.

Are you seeing increased demand for both money in and money out use cases in the context of today’s challenging exit environment?

Absolutely. The whole system is highly interconnected. LPs think about liquidity holistically and because large cap private equity distributions are generally down, sponsors across all strategies are struggling to fundraise. It takes 26 months on average to raise a fund today versus 15 months pre-pandemic. The average hold period for a portfolio company is over six years and that has been trending upwards since 2023 given the current state of the M&A market.

The M&A market is struggling both because of general macroeconomic and geopolitical uncertainty, which makes it tough for buyers to step up and pay premium prices, and because there is a lot of suspicion about what things are worth. If you look at where assets are currently selling versus where they are marked – what we call the ‘pop’ – it currently stands at 5 percent, compared to 42 percent in 2021. Furthermore, only the very best assets have been trading.

The Fed recently chose to hold rates and there has even been talk of potential rate rises. That all feeds into continued valuation uncertainty. In short, private equity is still working off its hangover from four to six years ago and there are no immediate signs that that is going to change.

How competitive is the NAV finance market from a lender’s perspective and how do players differentiate themselves?

It has certainly become more competitive. When we launched our first concept fund 13 years ago, we couldn’t have known how quickly and how significantly the market would grow. That’s the good news. The flip side, of course, is that others have since recognized the opportunity and so competition has increased.

As with any financial product, however, there are different ways you can choose to address that opportunity. You can target the small or large cap end of the spectrum. You can target private equity, secondaries, venture capital or real estate, for example. You can essentially “choose your own risk-adventure.”

We focus on the lower mid-market, where our heritage lies and where we have developed significant experience over time. We have seen spread compression just about everywhere, but the extent of that compression varies depending on where you are focused.

How do you approach risk management in the context of NAV lending?

We think about risk management from two different angles. We think about risk from a portfolio perspective because NAV loans are asset-based loans, so you have to be comfortable with the companies themselves, whether you feel their valuation marks are accurate, whether there is enough diversification and how much leverage there is.

In addition, we look very hard at the GP franchise. In the lower mid-market, in particular, you have franchises that may or may not be around for the long term and that may or may not remain aligned with you as a lender. There are lots of paths to success in the lower mid-market and there are a lot of great firms out there, but you need to do more analysis into the enduring nature of the GP than you would have to if you were lending to the likes of Blackstone or KKR.

What are your expectations for the NAV lending market going forward, as and when the exit environment normalizes?

I see this as a permanent and growing asset class. Market participants are getting increasingly comfortable with using NAV lines as just another tool that they have at their disposal to enhance returns. There will be times when exits don’t take quite as long to materialize and so that won’t be the primary driver of demand, but there might then be more need for add-on acquisitions or, just generally, to optimize leverage across the fund.

Ultimately, NAV is just another product that has come to make a lot of sense. There have been numerous other examples that have come before it. When capital call lines first emerged, there was a huge amount of skepticism. Now, they are ubiquitous. Continuation vehicles were originally called fund restructurings. Now they are widely accepted as a fourth exit route. Go even further back and there was no secondaries market. Now there is a huge amount of secondaries liquidity. NAV is just another one of these products. We are optimistic, therefore, about the enduring and growing nature of the asset class as both GPs and LPs increasingly come to understand the benefits that they can bring.