Late-stage liquidity and the Bermuda fund toolkit
Private-market liquidity once followed an exit. Today, however, it must often be engineered.
That matters in Bermuda, where asset management is not only a substantial sector in its own right, but also complemented by Bermuda’s re/insurance and insurance-linked securities market.
Intriguingly, Bermuda Monetary Authority statistics show that the net asset value of Professional Closed Funds registered under the Investment Funds Act 2006 rose from $67 billion in Q1 2025 to $78.4 billion in Q1 2026, while vehicle numbers fell from 117 to 112. Those figures suggest capital concentration in larger, maturing closed-ended portfolios.
The wider backdrop is familiar: uncertain merger and acquisition and initial public offering markets, stubborn valuation gaps, longer holds, and a distribution drought complicating limited partner allocations and sponsors’ next fundraises.
Globally and in Bermuda, the question now is whether to sell, “roll” or borrow at a private equity fund’s tail end. This is therefore a timely aide-memoire for Bermuda’s funds market.
Typical continuation vehicles involve transferring “trophy” assets from an existing fund into a new sponsor-managed vehicle. Existing LPs cash out or “roll” into the CV while “anchor” secondary investors inject capital, often seeking enhanced governance rights.
Assets gain time and follow-on liquidity but the transaction resets their holding period, fees/priority profit share and carried-interest economics.
The sponsor sits on both sides, effectively “selling to itself”. This leads to an inherent conflict which, while capable of being regulated contractually under the limited partnership agreement, cannot be erased.
Bermuda CVs formed as exempted limited partnerships must qualify and register as PCFs; they do not automatically inherit the selling fund’s status. CVs need not be funded only by equity but also debt that may bridge asset purchase prices, support follow-on acquisitions or supplement commitments.
Net asset value finance answers liquidity problems differently. The fund retains its portfolio and upside; this “downward-looking” debt is underwritten — through loan-to-value covenants — against heavily adjusted asset values and distributions.
NAVs may fund support, follow-ons, refinancing or LP liquidity/dividend recaps. In exchange come margin/interest cost, structural subordination to portfolio-company debt, valuation complexity, cash sweeps and potential cross-collateralisation/guarantees and expected credit loss liabilities.
A debt-funded distribution may improve distributions to paid-in capital but could equally accelerate carry and create clawback or recall risk, particularly under a “deal-by-deal” carried-interest distribution waterfall.
Bermuda’s solvency restriction remains, while returned or released contributions carry statutory and possible limited partnership agreement-level consequences.
Importantly, “NAV facility” describes a broad concept, not one paradigm. Indeed, fund-level NAVs may be awkward while a subscription line remains, and sufficient uncalled capital commitments support its borrowing base. Negative pledges, account control, cashflow priority and overlapping enforcement may require a hybrid refinancing or intercreditor solution.
Alternatively, NAV debt and/or preferred equity may sit “off to the side” in an orphan special-purpose vehicle, investing proceeds into an aggregator above portfolio HoldCos, with recourse to SPV equity and preferential distributions rather than UCCs.
Structural distance between an upper-tier fund and the NAV borrower is not necessarily curative, however. Whether this falls within the upper-tier fund’s LPA depends on its definitions of indebtedness, NAV facilities, borrowing subsidiaries and fund vehicles, and its indirect-leverage, guarantee/ECL, asset-transfer, pledge and conflict provisions.
The Institutional Limited Partner Association’s investor-protection position is that an SPV/preferred instrument economically supported by substantially all fund assets should count within fund-level leverage guardrails and disclosure, even where older LPAs are more opaque.
For Bermuda sponsors, LPA terms primarily determine the liquidity toolkit. Borrowing and security powers, leverage, downstream guarantee/ECL limits, use-of-proceeds restrictions, parallel-fund co-ordination, term extensions, valuation, recycling, recallability, waterfalls, and limited partner advisory committee jurisdiction dictate whether optionality survives.
Crucially, electing separate legal personality gives an exempted partnership capacity to own assets and enter into contracts, with registered charges achieving priority by registration date, although that is not to say registration of charges is not available for those partnerships that do not so elect.
Further, both routes must be reflected in the PCF’s annual BMA package of NAV and underlying-asset information, audited accounts, material changes and updated offering document.
Bermuda cannot legislate away global illiquidity. Its advantage lies in flexible partnership law and the PCF regime, allowing sponsors, LPs, and lenders to address it with precision and contractual freedom.
Once liquidity needs become urgent, however, such optionality should have been long-contemplated, not improvised.
First Published in The Royal Gazette, Legally Speaking column, August 2026
