Christine Lagarde, president of the European Central Bank, quoted in an article published by Reuters

First look

NAV lending is a $600bn opportunity
The size of the net asset value lending market is forecast to multiply more than six times from its current size over the next seven years, according to a report from fund administrator Citco.

Citco said NAV credit facilities had experienced annual growth of approximately 30 percent across its client base between 2019 and 2022, while secondary trading grew at around 7 percent over the same period.

According to the Fund Finance Association, the current size of NAV facilities globally is estimated to be less than $100 billion, representing under 1 percent of the estimated value of private capital investments. Based on current growth rates, Citco estimates the market could grow to more than $600 billion by 2030.

“For alternative asset managers, a prudently structured NAV facility provides liquidity, helping a manager to fulfil its fiduciary duty to its investor clients,” said Michael Peterson, managing director of Citco Capital Solutions.

Credit in ‘renaissance’ period says AlbaCore’s Allen
Conditions for lenders are the most favourable since at least the global financial crisis, or perhaps longer, according to a credit market update from David Allen, managing partner and chief investment officer at London-based fund manager AlbaCore Capital Group.

He says lenders will be able to generate equity-like returns based on higher coupons and yields, lender-friendly terms and a less dire economic outlook than originally feared. Senior secured risk is being priced at 10 percent yields, he adds – meaning equity-like returns can be achieved without moving into subordinated or distressed opportunities.

He says optimism around the economy has been generated by higher energy storage levels in Europe, China’s reversal of covid policies and resilient consumer spending despite higher prices. These factors have combined to blunt recessionary fears.

Allen said he believed rates and yields would remain high over the next several years and that elevated interest expenses would “likely lead to higher levels of default in the coming years”.

Lincoln tips European M&A revival
“Resurgent” deal activity is to be expected in Europe’s M&A markets this year, according to a new report from investment bank Lincoln International.

The report points out that market volatility and political uncertainty led to a marked decline in deals in the second half of last year, with European businesses “acutely affected by unrest in Ukraine and the resulting spike in energy prices”. But as some of the headwinds ease, M&A activity “will likely return with renewed momentum”.

With markets having seen a wave of repricing, Lincoln says more opportunities are starting to emerge. There is a view that central banks in Europe are unlikely to pursue interest rate increases comparable with the Federal Reserve in the US. As finance ministers coordinate their fiscal policies with the ECB to avoid worsening inflationary and recessionary pressures, the cost of capital is not expected to be prohibitive for dealmakers.

Lincoln says it has seen increasing pitch activity in Europe in Q1, which it thinks is likely to continue rising through Q2 and into H2.

Essentials