A Broad & Overlooked Opportunity in Portfolio Financing
In this PDI Q&A, Matt Hansford examines the broad and less known opportunity set in portfolio financing.
What does the NAV financing market look like today? How would you describe the breadth of products on offer?
When people think about NAV financing, they often focus on lending to private equity buyout funds. But the market is much wider than that. In fact, the other less talked about and less understood areas are more established—and have been in existence for over a decade.
For instance, there is private credit portfolio financing for corporate and real estate credit, among other asset classes. Those deals involve financing a cross-collateralised portfolio of private credit assets and represent a pretty defensive strategy because lenders are the most senior in the capital stack.
Then there is secondary portfolio financing, lending against a portfolio of secondary investments or a fund, which typically involves a number of LP stakes and allows lenders to benefit from a huge diversity of underlying assets.
Again, that is cross-collateralised so the lender benefits from the upside if an underlying asset increases in value, counteracting some of the downside potential in others.
Finally, there is GP financing, which is a source of liquidity capital for GPs and is being talked about a lot in the context of GP stakes equity. In an environment where GPs are growing and consolidating, having the option to introduce debt as well as equity into their capital structures is a valuable tool.
