USS urges GP transparency around CVs, NAV loans

GPs should be open and careful when using continuation funds or NAV loans if they want to maintain good relationships with LPs, said a private equity specialist from the UK’s biggest private-sector pension fund.

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Teia Merring, senior investment director at the £80 billion ($99.9 billion; €96.5 billion) Universities Superannuation Scheme (USS), was speaking on a panel at PEI Group’s Women in Private Markets summit in London last month. She is also board chair of the Institutional Limited Partners Association.

CVs have proliferated in the slow exit environment as GPs search for ways to deliver liquidity back to LPs. Fund investors have put more emphasis on seeing capital flow back from older funds before re-upping into a manager’s new fund.

According to Private Equity International’s LP Perspectives 2025 Study, a majority of LPs have noticed an increasing prevalence of CVs in the past 12 months, with 49 percent reporting seeing ‘somewhat more’, and 35 percent reporting ‘substantially more’. Just 15 percent of LPs say that they’ve seen no change.

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GPs should provide transparency around such mechanisms, according to Merring, who recommends that GPs discuss CVs with LPs and follow the ILPA guidelines on their usage.

These vehicles are often appropriate avenues for single-asset exits, she said.

“I’ve seen plenty of cases where the continuation vehicle was a good idea: they de-risk the portfolio, take money off the table; LPs might have had the position to roll completely, which is great. But there are also cases where, quite frankly, they’ve been misused and overused.”

The trouble is that often “GPs are not aware of how far behind LPs are in the conversation, and how little time they have to make the investments”, she added. “And if you are focused on your next fundraise, you don’t want to piss off your LPs too many times, because then the partnership is not there. So there has to be give and take.”

A further issue is that while some institutions are set up to reinvest in CVs, many are not, said Merring. Fewer LPs – 28 percent – say they have backed GP-led focused secondaries funds in this year’s LP Perspectives survey, down from 33 percent in 2024.

When LPs have to make a CV roll decision, in most cases the size is small, yet they still need to run a full underwriting process, she explained. The opportunity cost of running a process for a very small position is often not the right thing to do for the LP, so it ends up taking the default exit position.

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NAV facilities

NAV facilities have also proliferated as GPs seek fresh capital either to fund add-ons, support existing portfolio companies or, less commonly, create early liquidity for LPs. Their use has proven controversial in some quarters when used to distribute capital.

According to Fund Finance Partners, only 4 percent of loans issued last year were used to make distributions to LPs.

NAV loans are appropriate for certain things and ILPA has guidelines on their use, Merring said on stage, noting, however, that GPs should be transparent.

“I’m not saying don’t use them. I’m just saying, talk to your LPs about using them. Because we don’t look for managers who are really good at adding leverage that we don’t know about. We look for managers, by and large, who add alpha. And you don’t add alpha with a NAV line.”

– Alex Lynn contributed to this report.