They remains to be viewed the macroeconomic and you can governmental ecosystem often affect recruit appetite to own NAV fund

They remains to be viewed the macroeconomic and you can governmental ecosystem often affect recruit appetite to own NAV fund

If you’re went on tension toward investment valuations could possibly get delay execution, NAV financing is an organic equipment to deal with LP and you may mentor need for exchangeability so that as a supplement so you can guarantee investment during the what will most likely are still a difficult fundraising environment

  • Incorporating Strategic 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.
  • Resource Production so you can Dealers. 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.
  • Resource to have Administration People. 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.

If you are went on tension on the house valuations can get decelerate implementation, NAV finance are an organic product to address LP and recruit interest in exchangeability so when a complement in order to guarantee capital when you look at the just what will likely are still a difficult fundraising environment

  • Aftercare Business. 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 proceeded pressure into the advantage valuations may impede execution, NAV finance are a natural product to deal with LP and you may sponsor interest in liquidity and also as a complement so you’re able to security investment in the just what will likely remain a challenging fundraising ecosystem

  • Helps Extension Funds. 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.

Recession, battle and interest rate increases are among the of several headwinds having avenues throughout the coming months/years. It’s the flexibility out-of NAV structures in addition to their numerous apps to have sponsors one to act as an informed prognosticator for proceeded sturdy increases.

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