Lending Against LP Interests in Private Funds
How lenders extend credit to investors against their fund interests today, where the cost and friction sit, and how technology can make the process cheaper and faster without weakening the structural protections lenders require.
Part 1: How Fund Lending Works Today
An LP holds an interest in a private fund. That interest represents their share of the portfolio's net asset value. They want liquidity without redeeming, or they need capital while staying invested. A lender provides a loan secured by that interest. The lender "looks down" at the actual value of the fund's portfolio, applies haircuts, and lends against the residual.
The process involves diligence on the fund, negotiation of legal documents with multiple parties, ongoing monitoring through the fund administrator, and enforcement through a combination of cash sweeps and collateral seizure. It works. It is also slow, expensive, and rebuilt from scratch for every deal.