The fund finance market takes flight

White & Case LLP

White & Case LLP

Key Takeaways


Fund finance activity soars as PE managers access facilities in ever-greater numbers


The market is positioned to grow seven-fold by 2030, reaching an estimated US$700 billion


Fund finance products are rapidly evolving from simple bridging facilities into increasingly sophisticated tools used for NAV and GP financing


New entrants are growing market and broadening provision to more PE sponsors

Fund finance is positioned for record levels of growth as private equity (PE) general partners (GPs) tap traditional subscription and net asset value (NAV) financing lines in greater numbers.

This market—which began with simple bridge-type subscription lines—is rapidly developing into an increasingly sophisticated product, offering GPs a series of financing options at the fund level.

As fund finance offerings have evolved, more GPs have used the product and valued the liquidity it provides for portfolio companies and investors at key stages in the fund life cycle. This has driven up demand and encouraged new providers to enter the market alongside incumbent bank and alternative debt providers, making fund finance available to a wider pool of GPs.

Fund finance is also gaining traction across a wider set of private market funds as providers become adept at structuring collateral packages around the different profiles of various alternative asset strategies. Fund finance is now a regular feature in private credit, the PE secondaries market, real estate and buyout funds, with venture capital managers beginning to explore how the product could be used in their funds.


17 Capital forecasts show that NAV finance is on track to grow from US$100 billion today into a US$700 billion market by 2030

NAV financing spurs market growth

A primary driver of fund finance growth in recent years has been the development of NAV facilities, which enable GPs to borrow against the NAV of the assets held in their funds.

By borrowing against portfolio companies at the fund level, managers have been able to make distributions to their limited partners (LPs) earlier without having to exit crown jewel assets, and to provide additional financing to portfolio companies after fund investment periods have expired.

Managers and lenders have also found ways to use NAV facilities to enhance returns by back-levering assets, whether as part of the original acquisition financing or on a post-deal basis.

NAV facilities have been applied with increasing frequency in GP-led fund restructurings. In these GP-led deals, managers extend holding periods by shifting assets from a current fund into a new vehicle, giving LPs the option to roll their stakes or cash out. Secondaries investors (managers that trade stakes in private capital funds) funding these transfers are using NAV credit lines to finance a portion of their equity investments and boost returns.

With investment bank Jefferies recording growth of 94 percent in GP-led deals in 2021, there is strong underlying deal flow available to NAV lenders active in this area.

Such has been the growth of NAV financing that investors are now clamoring for exposure to the strategy. For example, 17Capital—one of the first NAV finance providers in the market—closed an inaugural NAV fund in April 2022 at a hard cap of €2.6 billion, well ahead of the €1.5 billion targeted by the firm on launch. 17Capital forecasts show that NAV finance alone is on track to grow into a US$700 billion market by 2030, up from US$100 billion today.

The bright prospects for NAV lending have been further underscored by the fact that asset manager Oaktree acquired a controlling stake in 17Capital earlier this year in a high-profile deal in the market.

As fund sizes and the market grow, NAV lenders will be able to finance larger portfolios and tailor loan-to-value (LTV) ratios to the particulars of the portfolio.

The typical LTV ratio for NAV facilities issued to portfolios has been between 20 percent and 30 percent, but higher LTVs are not unheard of. When it comes to back-levering deals with credit support from the relevant fund, LTVs can run substantially higher.

Ongoing innovation

The uptake of NAV funding lines, however, has not limited the pursuit of new and innovative developments among providers. Hybrid facilities, single fund and asset deals, and GP financing are some of the additions to the suite of fund finance options.

In hybrid facilities, the size of a fund finance package will be determined not just by the NAV of a fund's portfolio, but also any uncalled commitments still available to the manager from LPs.

Structuring these deals has proven challenging due to the different types of collateral involved, but lenders have navigated the differing credit review requirements to lay on hybrid facilities across the life of a fund.

Lenders have also responded to the growth of special accounts and single-asset deals in private markets by tailoring loans for these situations.

For NAV and subscription lines provided to funds with a single LP, lenders have gotten comfortable with LP concentration by enhancing the due diligence process. Lenders have also taken a granular approach to appraising the creditworthiness of portfolios to provide NAV facilities to single assets within a portfolio, but not others.

These innovations are driving expansion in the uses of fund finance and the types of assets it can cover, and bodes well for the market's growth trajectory.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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