Aside from facilitating greater liquidity for LP interests in PE funds, the growth of the secondary market in recent years has also had a trickle-down effect on the fund financing market. The result is that net asset value (NAV) facilities – which are often used by secondary funds to obtain fund-level leverage – have become more widespread and popular. The resulting competition among lenders has also prompted innovations in the collateral used to secure those loans and how the facilities are structured. The latest issues and trends in NAV facilities were explored by an expert panel at the Practising Law Institute’s Fund Finance 2019 Program. Moderated by Dechert partner Matthew K. Kerfoot, the panel featured Thad Bzomowski, vice president and counsel at Société Générale; Jocelyn A. Hirsch, partner at Kirkland & Ellis; and Joel Kress, chief operating officer at Pomona Capital. This first article in a two-part series provides an overview of the collateral supporting NAV facilities and certain ways they are used by secondary funds, while also exploring unique ways they are being extended to funds of hedge funds. The second article will detail some of the difficulties associated with negotiating and structuring NAV facilities, along with recent trends and developments in the space. For more on the secondary market, see “A Practical Guide to the Mechanics of a Secondary Transaction and Attendant Considerations
” (Mar. 3, 2020); and “An Insider’s Perspective on the Evolution of the PE Secondary Market
” (May 14, 2019).