LONDON, February 19, 2025–(BUSINESS WIRE)–Alpha Group International plc (LON:ALPH) has officially unveiled its new fund finance report. Leveraging insights from its Alpha Match platform, this unique report compiles heads of terms data to assess the risks associated with NAV financing. The results challenge prevalent misconceptions and address worries regarding General Partners (GPs) accruing excessive debt, as well as the reservations lenders have when issuing these facilities.
According to a recent whitepaper by Ares, the total fund finance market is approximated at $1.2 trillion. NAV lending constitutes around $225 billion (18.75%) of that, with secondaries NAV accounting for the majority of $175 billion, while single fund NAV facilities, the subject of this report, are valued at just $50 billion. In addition, Ares observes that the usage of NAV loans remains relatively minimal, under 3%.
Although NAV facilities make up a minor segment of the fund finance market, their utilization has faced scrutiny in recent years, primarily due to what the Bank of England categorizes as ‘leverage on leverage.’ This has prompted the Prudential Regulation Authority (PRA) to require banks to evaluate their current lending practices in private markets. The Institutional Limited Partners Association (ILPA) has also issued recommendations on NAV to its members, emphasizing the importance of communication between Limited Partners (LPs) and GPs, along with proper documentation.
Importantly, existing analyses of NAV facilities have relied on survey data and qualitative assessments. To date, these facilities have not been thoroughly tested in real-world scenarios. In response, we’ve created a new report using data from Alpha Match to investigate the implications of utilizing a NAV facility during challenging times. By aggregating heads of terms information, our findings reveal the potential hazards of this specific financing approach, and the outcomes could be eye-opening.
The report includes:
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By addressing the ‘leverage on leverage’ concern, this report aids fund managers (as borrowers) and their investors in comprehending the effects of NAV facilities on funds. It offers an independent, data-driven perspective on the current fund finance landscape for both GPs and LPs, helping them make informed decisions regarding the suitability of NAV loans.
Ben James, Alpha’s Head of Lender Engagement, states, “Lenders consider a variety of factors when determining the Loan-to-Value (LTV) ratio, including the fund’s portfolio makeup, diversification versus concentration, performance, existing leverage levels, realization certainty, and timelines, to name a few. Each lender and financing scenario will have distinct considerations and sensitivities, prompting lenders to tailor their financing structures to address these unique risks. It’s essential to recognize that no two financing situations are identical, both in the context of the lender’s credit underwriting and the borrower’s reasons for seeking financing.”
