In practice
Lenders size the loan as a loan-to-value ratio against the portfolio’s reported NAV, so a diversified portfolio with audited valuations borrows more easily. Whether a fund may take one turns on the LPA’s borrowing limits, which older agreements wrote with subscription lines in mind, and LPAC consent is often sought. It is often confused with a subscription line, which is secured on LP commitments and used earlier in a fund’s life.
An example
Round numbers, not a real fundSay a fund owns companies valued at $1 billion and borrows $150 million against them. It might use the cash to pay investors, fund follow-on investments or support a company.
Why it matters
Managers use it to pay investors, support companies or fund deals late in a fund’s life, which investors look at closely.
A definition, not advice; where usage varies the entry says so. Something wrong? Tell the desk.