Of course, the answer to how big the market can get is determined in part by the scale of the private capital industry itself. After all, the number of domestic companies listed on US exchanges has slumped by 40 percent from its peak, while private markets firms raised a record $1.18 trillion in 2021, according to McKinsey.

“The financing needs of funds are increasing as the funds themselves grow,” says Pierre Maugüé, corporate partner at Debevoise & Plimpton. “We have seen multi-billion-dollar subscription line facilities simply because the funds themselves are so enormous.”

Market growth requires additional supply, as well as demand. The banking sector, which has traditionally dominated the subscription finance market, does not have unlimited capacity, and may even have to rein back its appetite in a more volatile economic environment. However, additional liquidity is now being provided by institutional players – insurance companies particularly. “There has been a big increase in non-bank allocations to this market as a result of the introduction of credit ratings,” says Investec’s head of secondaries, Ian Weise. “That is enabling more sources of capital to enter the space.”

Brian Foster, partner at Cadwalader, adds that in addition to non-bank lending growth in the market, capital relief trades are starting to aid in balance sheet constraints, helping some banks to keep up with liquidity demand. In fact, Foster believes the subscription line market alone is worth $750 billion.

Meanwhile, the more nascent NAV market is poised for a spike based on increased uptake. “There has been a lot of education of GPs, and in turn LPs, in the use of this form of financing, and that has proved key to increased adoption,” says Wiese.

Zac Barnett, co-founder of Fund Finance Partners, predicts NAV financing will increase three- to five-fold within the next five years in the buyout and real estate markets, with private credit also becoming increasingly active in the space. Hark Capital founder Doug Cruikshank points to very large deals that have already been completed. “Some of the big players in the market have also raised large amounts of capital recently. The potential is huge.”

Indeed, that combination of private capital growth and increased adoption leads us to some pretty astonishing numbers, for what Thomas Doyle, head of NAV financing at Pemberton, says was just a cottage industry a few years ago. “If you consider all the capital that is raised, with the intention of being put to work for an average of five years, together with a conservative 1.5X performance multiple, I believe we could easily see a few trillion of NAV over the next couple of years,” he notes.

“Then assume that perhaps 40 or 50 percent of managers buy into the idea of NAV financing and perhaps 20 or 30 percent actually put these facilities in place. On that basis, we could easily be talking about a $500 or $600 billion global market, or perhaps even $1 trillion. We are nowhere near that level yet. Talk has to be converted into action, but this has the potential to be a very large segment indeed.”