Dislocation innovation

A look at what’s happening in preferred equity, concentrated NAV and (not) happening in diversified NAV; Davis Polk takes a look at other sources of liquidity.

In this article, I take a look at what I’m calling alternative fund finance. Funds are in need of finance, that’s clear – to capitalize struggling portfolio companies, make distributions to investors that would otherwise not be made, buy LP interests, make opportunistic bolt-on acquisitions or even buy portfolio company debt that’s trading at serious discounts. But banks are assessing their exposures, and even in the diverse NAV lending space (such as loans for buying a portfolio of secondary interests), the word from those in the know is that deals are largely “pencils down.”

So in the article, I take a look at the landscape of the relatively nascent sector of “concentrated NAV lending.” I take a look at who the players are (even some banks), the dealflow they’re seeing and explain on a high level how the product works (its very bespoke).

We spoke to one NAV lender, Doug Cruikshank of Hark Capital, at January’s CFOs & COOs Forum, the video of which you can see here. And for further context, should you like it, I’ll also direct you to yesterday’s story on preferred equity, as well as Adam Le’s top-billing long-read on the rise of Whitehorse Capital (a preferred equity specialist).

And as a bonus, lawyers at Davis Polk & Wardwell give us this guide to liquidity solutions during a time of market dislocation. They go through pros and cons of preferred equity, as well as the very interesting approach of shared waterfalls and JV structures, which can help bridge over the question of valuation.

Email prepared by Graham Bippart