Fund finance to the fore Another market that has grown to address GP demand for more liquidity is fund finance. More than a third (36%) of respondents expect fund finance to increase in the next 12-18 months, which is a significantly different outlook to last year, when only 2% anticipated an increase. “There is greater demand for fund-level financing now, and it will increase. Until economic conditions improve, funds require additional capital from sources other than the usual investors,” one GP says. Close to half (46%) of respondents expect their use of fund- level leverage for investment activity to increase, with facilities such as NAV financing becoming more popular. NAV financing – raising debt against the value of portfolio assets held in a fund – is forecast to more than triple in size from US$44 billion in 2023 to more than US$145 billion by 2030, according to Oaktree Capital Management and its subsidiary, 17Capital. NAV facilities, subscription lines, GP and management facilities and other fund finance lines are being harnessed by GPs in a variety of ways, for uses ranging from reducing capital calls made to liquidity-constrained LPs, funding GP commitments and maximizing the efficiency of their own balance sheets, to making distributions to investors and supporting portfolio companies outside of capital windows. “Fund finance is now a fundamental part of the GP toolbox and one of the most efficient ways to inject more liquidity into a deal or fund,” Comis says. “The initial increase in the use of fund finance was in response to tighter liquidity, but now that GPs and LPs have become more used to it, it is here to stay.”
Do you expect fund finance to increase or decrease in the next 12-18 months?
34%
46%
17%
TotǸl
1%
2%
35%
50%
15%
AsiǸ-PǸcific
28%
43%
23%
3%
EMEA
3%
38%
47%
13%
North AmȃricǸ
2%
IncrȃǸsȃ siȌnificǸntly IncrȃǸsȃ sliȌhtly to modȃrǸtȃly StǸy thȃ sǸmȃ DȃcrȃǸsȃ sliȌhtly to modȃrǸtȃly DȃcrȃǸsȃ siȌnificǸntly
Do you expect your use of fund-level leverage to support investment activity (e.g., NAV facilities) to increase or decrease in the next 12-18 months?
6%
40%
52%
TotǸl
2%
55%
40%
5%
AsiǸ-PǸcific
37%
54%
6%
EMEA
3%
9%
36%
55%
North AmȃricǸ
IncrȃǸsȃ siȌnificǸntly IncrȃǸsȃ sliȌhtly to modȃrǸtȃly StǸy thȃ sǸmȃ DȃcrȃǸsȃ sliȌhtly to modȃrǸtȃly DȃcrȃǸsȃ siȌnificǸntly
38
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