Private Equity Investors Plead for More Clarity on NAV Loans (2)

Private equity firms should alert investors before they borrow against their funds’ assets — especially when using so-called net-asset-value loans to juice returns, according to new guidelines from a trade group for such investors.

The Institutional Limited Partners Association issued the guidelines Thursday on NAV loans after much debate about their use amid a prolonged deal drought that has dampened distributions. While some firms contend NAV loans can help them raise cash when times are tight, certain investors perceive them as risky financial engineering that can imperil portfolio companies.

In particular, investors — known as limited partners — fret that ...