NAV Financing Surges as Private Equity Firms Seek Performance Edge, Says 17Capital's de Selancy

Pierre-Antione de Selancy, Managing Partner of 17Capital, discusses the growing popularity of NAV (Net Asset Value) financing, its applications, and its relationship to traditional subscription lines in an interview from IPEM Paris 2024.

17Capital specializes in NAV financing for the private equity industry, providing leverage solutions that help funds finance add-on acquisitions, accelerate liquidity and enhance returns for LPs.

Key Points from the Interview:

• NAV financing uptake is driven by fierce GP competition and portfolio optimization needs: With private equity fundraising remaining challenging, NAV loans help GPs improve performance and stand out among the hundreds of opportunities LPs see annually.
• More than 95% of NAV loans fund add-on acquisitions: The vast majority of NAV financing supports M&A activity as buy-and-build strategies have grown from 30% to 50% of the buyout universe. The remaining 5-10% is used to recapitalise over-leveraged companies.
• Limited banking sector interest versus the established subscription line space: While subscription line financing represents an $800 billion market with broad bank participation, the NAV lending market remains smaller, and only a handful of banks are looking at the space due to the higher regulatory capital requirements for private asset-backed lending compared to the AAA-rated LP commitments that collateralize subscription lines.
• Growing LP acceptance based on value creation understanding: A study by RedePartners shows 85% of LPs support NAV lending when properly explained as a value creation tool. Some NAV loans require LPAC approval, and typically receive huge support from LPs during this process, reflecting increased appreciation of the strategic benefits NAV loans provide.
• Industry consolidation continuing despite recent pause: While M&A activity among asset managers slowed over the past two years due to fundraising uncertainty affecting valuations, consolidation trends persist as LPs prefer fewer managers offering multiple strategies, providing better negotiating power for fees and terms while simplifying relationship management.