They is still around seen the macroeconomic and you can governmental environment will apply at sponsor appetite to possess NAV funds

They is still around seen the macroeconomic and you can governmental environment will apply at sponsor appetite to possess NAV funds

When you’re proceeded tension towards the resource valuations get delay execution, NAV funds is actually an organic product to handle LP and sponsor interest in liquidity and as a complement to equity financial support inside the what will most likely will always be a challenging fundraising environment

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  • Adding Proper Investments. We commonly see NAV loans structured in connection with the addition of strategic investments by a fund. These loans can be structured to provide acquisition financing, or to provide back-leverage to a fund to finance the equity portion of its acquisition costs for the particular investment(s). Such facilities are typically used later in the investment cycles of funds once capital commitments have largely been called or are no longer fully available.
  • Financial support Returns so you can Investors. As average hold periods for private equity portfolios increase, there is continued pressure on sponsors to monetize their investments and provide liquidity to their investors. As a result, a common use of NAV loans is for sponsors to borrow at the fund level to return capital to investors. Lenders are repaid later after realization events with respect to one or more investments of the funds. In this instance, a NAV loan allows the fund to return capital to its investors in advance of one or more realization events with respect to its investments.
  • Capital to have Management Companies. General partners and management companies use NAV loans for a range of purposes, including working capital, funding increased investment in the funds that they manage, payment of taxes, payment of bonuses, technology upgrades, distributions to owners, and succession planning (i.e., transferring ownership interests in managed funds from founders to the next generation of investment professionals), to name a few. Such facilities s from the funds or by equity in in the funds.

When you are proceeded tension to the house valuations will get impede implementation, NAV loans was a natural product to address LP and you may sponsor demand for liquidity so when a complement so you’re able to security money when you look at the what is going to most likely remain a challenging fundraising environment

  • Aftercare Place. For funds with ongoing liquidity needs after the expiration of their investment periods, some lenders will agree to extend a fund’s existing subscription line facility subject to certain supplemental credit enhancements, including adjustments to the borrowing base to increase borrowing capacity (e.g., a substantial increase in the borrowing base from a traditional blended advance rate of 50% up to 90% is not uncommon). In return for this increase to the borrowing base availability, lenders will typically require the implementation of NAV-style covenants to mitigate against the reduced primary source of collateral and repayment in the form of uncommitted capital for these facilities and look “downward” at the asset value of the fund’s investments. See our colleague Chad Stackhouse’s in-depth discussion of these types of facilities here.

When you find yourself continued tension to your investment valuations may decelerate execution, NAV funds is actually a natural tool to deal with LP and you will sponsor interest in exchangeability and also as an enhance in order to equity resource from inside the what will more than likely will always be a difficult fundraising environment

  • Assists Continuation Money. The use of financing for continuation funds has received a lot of press as of late. A continuation fund will be set up to transfer assets from an existing fund. The investors in the existing funds can elect to either be cashed out of the investment or to roll their equity into the new fund alongside new and existing investors. The purchase payment by the continuation fund for the transferred asset(s) (which is used to pay out exiting investors) may be funded in part using debt under a NAV loan.

Market meltdown, combat and rate of interest develops are some of the of several headwinds for segments about upcoming months/many years. It’s the freedom regarding NAV formations as well as their many apps for sponsors that serve as an educated prognosticator getting continued robust progress.

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