By: Anastasia N. Kaup, Managing Director and Partner, Fund Finance Partners, LLC, Patricia C. Lynch, Partner, and Patricia Teixeira, Counsel, Ropes & Gray LLP
FFP is pleased to have partnered with Ropes & Gray LLP to present the attached article, “NAV Financing: A Terrific Tool for Savvy Fund Sponsors”. This article focuses on NAV financing from the asset manager’s perspective, including reasons for asset managers to use NAV financing and some of the top business and legal points and considerations for asset managers and their investment vehicles in NAV financing transactions.
Private investment funds across all asset classes are increasingly taking advantage of net asset value (“NAV”) financing to improve fund returns or achieve other objectives. In a NAV financing, one or more bank(s) or alternative lender(s) provide a fund or one or more or its subsidiaries with a term or revolving credit facility, with borrowing availability based on the NAV of the fund’s investment portfolio. Once a closed-end private fund has matured beyond its commitment or investment period, it has typically called and deployed substantially all of its capital commitments to make investments. Accordingly, such funds often have little to no borrowing availability under any subscription credit facility. At that point, funds often turn to NAV financing. Investors in such funds are often supportive of NAV financing because it can potentially improve fund returns and give fund managers flexibility to manage the fund’s portfolio at a time when the fund likely has already called most or all of the investors’ capital commitments.