In its review of 2021 for fund finance and private equity, The Royal Bank of Scotland International pointed out that a few managers in 2020 who were fully invested used NAV facilities to fortify stressed assets and provide liquidity support.
Since then, as Private Funds CFO has previously reported, managers have been using NAV loans to distribute proceeds to investors earlier, as well for other purposes, such as financing GP-stake sales.
“Instead of waiting to exit the investment, the managers will distribute some of the value from the fund to provide a return while holding on to the asset for longer,” Spencer Goss, senior relationship director at RBS International, said in the report.
While most participants in the concentrated NAV-loan market are non-bank lenders, Goss said that he expects more banks to enter the arena soon (banks tend to make NAV loans on diverse secondaries portfolio purchases). Only a handful of banks have been active participants in the market so far, given their high loan-to-value ratios and associated regulatory capital requirements.
“My perception is that only a small proportion of credible lenders currently provide NAV-based funding, but as more banks get familiar with the product and risks involved then these facilities are likely to grow further as borrower appetite certainly seems to be there.”