As a way to generate liquidity while the exit environment remains unfavorable, some PE sponsors have begun issuing LPs “synthetic” distributions generated from proceeds from preferred equity issuances, net asset value (NAV) facilities and other debt-backed capital returns. LPs have expressed concerns about synthetic distributions, however, including their costs, a lack of GP transparency and their impact on a fund’s risk profile. The strong reactions of some LPs to so-called “leverage on leverage” risks threaten to inhibit the potential value to sponsors of NAV facilities and synthetic distributions as liquidity tools. Sponsors can adopt a two-prong approach to abating those concerns, however, by both building safeguards into their fund documents and dispelling LPs’ misunderstandings through increased and improved communications. This second article in a two-part series details specific ways GPs can address investors’ concerns about synthetic distributions, both in terms of how they communicate about and structure synthetic distributions and the NAV facilities that facilitate them. The first article provided an overview of synthetic redemptions, detailing LP concerns and common misconceptions about their use. See “Trends in Private Fund Terms and GP‑LP Fundraising Perspectives in the Current Market Environment” (Jul. 27, 2023).