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Explore continuation funds, NAV loans, preferred equity and secondaries when LPs need liquidity before private assets are ready to sell.
A private fund can have a strong portfolio and still face a liquidity problem.
Limited partners may need distributions. The fund may be approaching the end of its term. A pension plan or family office may want to reduce private-market exposure. Meanwhile, the GP may believe selling portfolio companies today would crystallize unnecessary discounts just before an operational milestone, refinancing, acquisition, IPO window or stronger M&A environment.
The question becomes: how do you create liquidity without forcing the wrong assets to be sold at the wrong time?
Quick Answer: When LPs need liquidity before private-fund assets are ready to sell, the GP can evaluate LP-led secondary sales, continuation vehicles, tender processes, NAV financing, preferred equity, portfolio-company recapitalizations or a hybrid. The right structure depends on who needs liquidity, asset quality, fund documents, remaining fund life, valuation, leverage and the expected timing of exits.
Private assets do not generate liquidity on an investor's preferred schedule.
A fund may own companies with significant unrealized value while distributions remain limited because IPOs, strategic sales or sponsor-to-sponsor exits are not attractive enough.
That gap has helped expand the secondary market.
Jefferies reported that global private-market secondary transaction volume reached a record $240 billion in 2025, up 48% from 2024. GP-led transactions accounted for $115 billion of that total, with continuation vehicles making up the majority of GP-led activity.
That does not mean every fund with impatient LPs needs a continuation vehicle.
The first question is much simpler:
Who actually needs liquidity?
If one LP wants out, restructuring the entire fund may be unnecessary.
If most LPs want distributions but the GP wants to retain several high-conviction assets for another three years, a broader restructuring becomes more relevant.
Not necessarily.
In a conventional closed-end private equity fund, an LP's desire to receive cash is not automatically a contractual redemption right.
The starting point should be the limited partnership agreement, side letters and other governing documents.
The GP and counsel need to identify:
This matters because a fund-level financing that looks economically attractive may not be permitted under the existing documents without consent.
Evergreen and semi-liquid private-asset funds create a different issue because their documents may provide periodic redemption opportunities.
Canadian regulators have specifically highlighted the danger of mismatches between redemption terms and the liquidity of underlying private assets. The Canadian Securities Administrators reported that some private asset funds restricted or suspended redemptions during 2025 where portfolios could not generate cash quickly enough to satisfy investor requests.
That is a different structure from a traditional closed-end PE fund, but the underlying lesson is the same: investor liquidity should not be promised on a faster schedule than the assets can realistically support.
If a limited number of LPs want liquidity, selling their fund interests may be cleaner than changing the fund itself.
A secondary buyer purchases the LP's interest, including its economic exposure to the remaining portfolio and potentially its share of remaining commitments.
The portfolio companies do not need to be sold.
The fund does not necessarily need to borrow.
The GP does not need to transfer assets into a new vehicle.
That can make an LP-led secondary sale particularly attractive when the problem belongs to an individual investor rather than the portfolio.
The tradeoff is price.
Secondary buyers will evaluate the underlying NAV, portfolio concentration, fund age, expected distributions, unfunded commitments, manager quality and how long they expect to wait for realizations.
A seller that requires immediate liquidity may therefore accept less than the reported NAV.
The important comparison is not simply:
“What discount are we taking?”
It is:
“What is the economic cost of selling today versus financing liquidity and holding the assets longer?”
A continuation vehicle can address a broader mismatch between the existing fund's remaining life and the GP's desired ownership period.
The GP arranges for one or more portfolio assets to move from the existing fund into a new vehicle.
Existing LPs can typically be offered alternatives such as receiving liquidity by selling their exposure or continuing their investment through the new structure, subject to the actual transaction terms.
New secondary investors provide capital to acquire the assets from the existing fund.
That creates cash for LPs who want to exit while allowing the GP to retain exposure to assets it believes should not yet be sold.
This is especially relevant where a strong portfolio company needs another two or three years to complete an expansion, bolt-on acquisition strategy, operational improvement program or other value-creation plan.
But continuation vehicles contain an inherent conflict.
The GP is involved with both the selling fund and the vehicle buying the asset. It may also continue earning management fees and potentially carried interest.
ILPA's June 2026 draft continuation-vehicle guidance emphasizes process integrity, LP election options, management of conflicts, pricing validation and transparency. The public consultation closed on August 5, 2026, and ILPA has said final updated guidance is expected later in 2026.
That conflict is why valuation and process matter so much.
A continuation vehicle should have a defensible commercial rationale beyond extending fee income or avoiding an unattractive mark.
Do not assume it does.
The SEC's 2023 private fund adviser rules would have imposed specific requirements on adviser-led secondary transactions, including a fairness or valuation opinion in relevant circumstances.
However, the U.S. Court of Appeals for the Fifth Circuit vacated those rules on June 5, 2024. The SEC subsequently confirmed that the adviser-led secondaries rule and the other newly adopted private fund adviser rules were vacated.
That does not make conflicts irrelevant.
Registered investment advisers remain subject to the applicable Investment Advisers Act fiduciary framework. The SEC's fiduciary interpretation states that advisers must address conflicts and provide disclosure sufficiently clear for clients to provide informed consent where disclosure is the appropriate means of addressing the conflict.
Fund documents, state law, securities rules, tender-offer requirements and the exact adviser and transaction structure can add further requirements.
U.S. counsel should therefore review the actual transaction rather than relying on a generic GP-led-secondary checklist.
NAV financing raises debt against the value of a private fund's remaining portfolio rather than relying primarily on one individual portfolio company.
In plain English, the fund is borrowing against its collection of investments and expected future realizations.
This can be useful when the GP believes the portfolio will generate meaningful exits in 12 to 36 months but needs liquidity today.
Mehmi's guide to private credit in Canada discusses NAV-based financing as one of the structured and special-situations applications of private credit.
A NAV lender may examine:
A diversified $1 billion portfolio with ten mature companies presents a very different lending case from a $1 billion fund whose value is concentrated in two companies.
Because the portfolio companies may already be leveraged.
Suppose a fund owns a business financed with senior debt and then borrows again at the fund level against the equity value of that company.
The capital stack now contains leverage at two levels.
A decline in enterprise value can therefore reduce equity NAV much faster than it reduces the underlying operating company's value.
Fund-level debt may also redirect future distributions toward loan repayment before LPs receive additional cash.
That is why the question should not be:
“How much NAV debt can we raise?”
It should be:
“How much senior fund-level capital can this portfolio support without turning a temporary liquidity problem into a permanent leverage problem?”
The same principle appears in corporate restructuring. Mehmi's guide to equipment refinancing during restructuring or turnaround emphasizes that new financing only works when it buys time for a viable underlying plan rather than simply postponing losses.
Fund-level preferred equity can create liquidity without introducing the same contractual debt maturity.
A preferred capital provider contributes cash in exchange for priority economics over future distributions.
The investment may have an accrued preferred return, distribution priority, minimum return, redemption mechanics or participation features depending on the transaction.
This can be useful where the portfolio has substantial value but exit timing is uncertain.
The fund does not necessarily have to make quarterly cash interest payments in the way it might under a NAV loan.
The cost is usually greater economic participation.
Preferred capital that compounds for three or four years can become expensive even though it initially looks easier on liquidity.
The comparison is therefore similar to corporate mezzanine financing. Mehmi's mezzanine financing guide explains the broader principle: junior capital can solve a gap left by senior financing, but higher risk normally comes with materially higher economics.
Sometimes this is the better answer.
Before putting leverage at the fund level, the GP should determine whether specific portfolio companies can generate distributions through refinancing, recapitalizations or asset-backed liquidity.
For example, an operating company with significant receivables and inventory might qualify for an asset-based facility. Mehmi's Asset-Based Lending Canada guide explains how borrowing capacity can be built around receivables, inventory and other collateral instead of relying exclusively on enterprise-value debt.
An asset-heavy portfolio company may be able to release liquidity from owned machinery through equipment refinancing or a sale-leaseback transaction.
Those structures may create dividend capacity without moving ownership of the company.
But this should not become a backdoor leveraged distribution that leaves a healthy portfolio company overburdened.
The operating company's debt service, capital expenditures and working capital come before the fund's desire to return cash.
Bridge financing can work when there is a highly visible near-term realization.
Imagine a portfolio company has signed a sale agreement, but regulatory approval and closing are expected six months later.
LPs need a distribution now.
A short-duration facility supported by a defined monetization event may be easier to justify than a multi-year NAV loan.
Mehmi's guide to commercial bridge financing makes the same distinction at the operating-company level: a bridge should connect two identifiable points rather than finance an indefinite liquidity deficit.
The stronger the exit certainty, the more logical short-term financing becomes.
If the repayment source is merely “we expect markets to improve,” the structure is much weaker.
Consider a hypothetical North American private equity fund with USD $800 million of remaining NAV across four portfolio companies.
Several LPs want distributions, but the GP believes its largest assets need another 18 to 30 months before an orderly exit.
The fund wants to create USD $120 million of liquidity without selling the portfolio today.
This example is purely illustrative. It is not a Mehmi financing offer or a representation of current market pricing.
Assume the restructuring uses two components.
First, the fund raises a USD $70 million NAV facility carrying an assumed 9.50% annual cash interest rate, interest-only for two years, with quarterly payments and a 1.25% upfront fee.
Quarterly interest would be approximately $1.663 million.
Annual interest would equal $6.65 million.
Over two years, cash interest would total $13.30 million. The illustrative upfront fee would add $875,000.
Including repayment of the $70 million principal, total cash associated with that facility over two years would be approximately $84.175 million, before legal expenses, diligence costs and other fees.
Second, assume a USD $50 million preferred-equity investment carries a 12% accrued return compounded annually, with no current cash distributions.
After two years, the preferred claim would have grown to approximately $62.72 million.
Combined, the structures provide $120 million of gross liquidity today.
If both are fully taken out after two years, total principal, accrued preferred value, NAV-loan interest and the assumed upfront loan fee would amount to approximately $146.895 million.
The liquidity therefore carries approximately $26.895 million of illustrative financing and preferred-return cost over two years, before advisory, legal and transaction expenses.
That may be rational if waiting two years protects substantially more than $27 million of portfolio value.
It may be irrational if the GP is borrowing merely to avoid acknowledging that current NAV is too high.
That is the analysis investors should demand.
A structured tender can allow interested investors to sell some or all of their interests to a secondary buyer or consortium while other investors remain invested.
This can create a middle ground between an isolated bilateral LP sale and a full continuation-fund transaction.
The fund should establish exactly:
In the United States, tender-offer regulation can apply depending on the securities and transaction structure. Counsel should determine whether Exchange Act provisions, Regulation 14E or other requirements apply rather than assuming every private-fund liquidity process is treated identically.
Sometimes the lowest-cost capital is time.
If most LPs remain supportive and the remaining portfolio has credible exit paths, a fund extension may avoid an unnecessary secondary discount, NAV facility or continuation-fund transaction.
But the extension should have a clear rationale.
Management should be able to explain what additional time is expected to accomplish.
Examples include completing an operational turnaround, integrating an acquisition, reaching a regulatory milestone, refinancing an operating company or waiting for a contracted infrastructure project to reach a more mature stage.
An extension with no identifiable value-creation plan is simply delay.
LPs will reasonably ask why the assets should be worth materially more two years from now.
Start with the source of the liquidity problem.
If one investor wants out, evaluate an LP secondary.
If a concentrated group of LPs wants liquidity, consider a tender or secondary solution.
If the existing fund is nearing maturity but the GP has high conviction in one or more assets, evaluate a continuation vehicle.
If exits are reasonably visible and the portfolio has substantial diversified NAV, NAV financing may provide temporary liquidity without moving the assets.
If exit timing is less predictable and the portfolio cannot prudently support more debt, preferred equity may provide greater flexibility.
And if operating businesses themselves have excess borrowing or asset capacity, portfolio-level financing may be more efficient than fund-level leverage.
For situations where the underlying companies need alternative financing rather than the fund itself, Mehmi's private business lender guide and its discussion of bank-alternative financing explain how non-bank capital can differ from conventional bank structures.
A sophisticated process needs far more than the latest quarterly NAV statement.
The diligence package may include:
For a continuation vehicle, investors will also want to understand why the assets are being retained, how the transfer price was established and how GP economics change in the new vehicle.
The GP should expect sophisticated investors to challenge both NAV and exit timing.
The first is treating the liquidity problem as proof that assets should be sold.
LP liquidity and asset quality are separate issues.
The second is adding leverage without stress-testing portfolio values.
NAV lending can look conservative at closing and become much more aggressive after a material write-down in one concentrated investment.
The third is designing a continuation vehicle around the GP's preferred outcome rather than giving LPs a credible decision process.
The fourth is ignoring tax.
A transfer into a continuation vehicle, a secondary sale, a preferred structure and a distribution financed through debt can create different tax outcomes for different investors in the United States, Canada and other jurisdictions.
The fifth is borrowing simply to fund distributions when the underlying portfolio is deteriorating.
Financing should create time to realize genuine value.
It should not manufacture distributions that the assets are unlikely to repay.
A direct LP-led secondary sale may be the cleanest solution if the fund documents permit the transfer and an acceptable buyer can be found. It avoids refinancing or moving the entire portfolio solely because one investor wants cash.
No. An extension generally keeps assets inside the existing fund for longer. A continuation transaction normally transfers selected assets into a new vehicle, allowing eligible existing LPs to make whatever sell or roll elections the specific transaction provides.
Potentially, if its governing documents, lender terms and applicable law permit it. Whether it is prudent is a different question. The GP should model repayment from realistic portfolio realizations and disclose the effect of leverage on remaining investors.
Diversified portfolios of mature assets with credible valuations and reasonably visible realization paths generally provide stronger support than highly concentrated portfolios with uncertain exit timing. Actual underwriting varies substantially by lender.
Not universally. NAV facilities can be structured in different ways, and collateral, guarantees and control rights depend on the fund structure and lender. Underlying company debt documents can also restrict upstream guarantees or distributions.
It eliminates some characteristics of conventional debt, such as scheduled principal amortization in many structures, but it is not automatically cheaper or safer. Preferred returns can compound quickly and the investor may negotiate significant distribution priorities and control rights.
When the transaction only works by defending an unrealistic NAV, when there is no credible realization path, when additional leverage would impair the remaining portfolio, or when the cost of providing liquidity exceeds the value expected from waiting.
Possibly. If there is a credible strategic or financial buyer offering fair value today, an ordinary exit may be simpler and less risky than adding fund-level leverage or creating a continuation structure. Restructuring makes the most sense when there is a defensible reason why additional holding time is expected to create more value.
Mehmi Financial Group acts as a commercial financing brokerage and intermediary, not a direct lender, investment fund manager or investment adviser. Its published disclaimer confirms that financing is ultimately provided and underwritten by independent third-party capital providers.
For complex private-capital situations, the financing conversation should begin with the amount of liquidity required, U.S. or Canada, applicable state or province, fund and portfolio structure, intended use of proceeds, collateral or NAV support and required timing.
Where the solution involves a fund restructuring, continuation vehicle, securities transaction or changes to LP rights, specialized fund, securities and tax counsel should be involved alongside the financing team.
Call 833-863-4644 or use the Mehmi Financial Group contact page to discuss the financing requirement. Mehmi's current contact page confirms the toll-free number.
Financing remains subject to third-party underwriting, diligence, documentation and capital-provider approval. Mehmi Financial Group does not guarantee financing, pricing, investment outcomes or transaction execution.
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