NAV loan need-to-knows
Pop quiz: which niche segment of the private markets industry is predicted to grow sevenfold to $700 billion by the end of the decade? Answer: the NAV loan market. That’s according to 17Capital, which, we should point out, has a vested interest in this market growing. Still, more brand-name GPs are using such facilities to accelerate liquidity back to LPs and help increase DPI.

The slow fundraising environment has muted demand for subscription credit lines, and attention is shifting to the market for NAV finance, where the loans are supported by the consolidated equity value of the portfolio.

Will rising interest rates curb demand? Our colleagues at Private Funds CFO have spent the last few months digging into this question – and many others – and concluded that opinions are mixed. Some, like Jamie Mehmood, a partner at Deloitte, say that the weaker exit environment, spurred by the higher cost of borrowing, inflation and a decline in public market valuations, has led to sponsors seeking alternative ways to return capital to LPs – including via NAV loans.

Conversely, as NAV loans have become more expensive, they’re less likely to be used to distribute capital back to LPs, and more likely to be used to help with value creation in a portfolio. With the cost of a NAV loan now higher than the 8 percent hurdle rate of a fund, taking on an expensive form of financing is only economical if you know the returns that will be made in the long run will be higher, said Jonathan Harvey, head of relationship management, fund solutions, at Investec.

Sign of the times
New York-based investment bank Goldman Sachs reported $305 million of losses in its private portfolio, primarily due to write-downs of office properties, chief financial officer Denis Coleman told investors on an earnings call – as reported by our colleagues on Real Estate Capital USA.

Debt investment revenues also declined year-over-year because of weaker performance in real estate markets, he added. The earnings call also highlighted – for the first time – the firm’s $178 billion loan book. Only 15 percent, or $28 billion, of the loans were exposed to commercial real estate, with only 1 percent of that to office – that percentage is down from just over 18 percent at the same time last year.

Carlyle joins LDC in Evolution driving seat
Auto finance is an investment area attracting considerable interest from private debt managers, and Carlyle has supported positive views of the market with its acquisition of Evolution Funding, which describes itself as the UK’s largest used auto finance platform.

Evolution connects car dealers and auto finance providers with sources of lending and says its funding platform is “widely embedded” across UK automotive dealerships. In the last year, it has enabled nearly 150,000 financing transactions and has a total platform volume of more than £2 billion.

Carlyle is investing alongside existing Evolution backer LDC and is committing equity from Carlyle Europe Technology Partners, a €3 billion fund that invests in technology companies across Europe.

Essentials