A once-niche tool for fund financing is gaining traction among PE managers scouting for new sources of capital in a market strained by waning liquidity.
Net asset value financing allows fund managers to borrow against the fund’s investments. In less frequent cases, it takes the form of preferred equity, which isn’t secured on collateral and carries higher yields to compensate for the additional risks that lenders bear.
“We are currently seeing lower levels of liquidity in the market, a less attractive monetization and a more challenging capital raising environment,” said Dane Graham, a managing director at 17Capital, a private lender that extends NAV loans and preferred equity to buyout funds. “Each of these factors have impacted our opportunity set in a positive way.”