hi all,
Do private debt funds leverage their loans to their clients? So for example if a private debt fund is offering a one year £1m loan to me at 9% p.a., do they put down £250k of fund capital, borrow £750k from a bank at say 4% p.a. & then make an effective 24% p.a. return on their capital? Or do they simply provide the £1m using their fund capital & then simply make 9% on their money?
Thank you!
| +72 | Nothing to do at work & bored to hell | 5 | 23h |
| +58 | Do people over-index on 'moats' | 19 | 13h |
| +38 | Why is ROIC never really a topic when looking at companies IRL | 11 | 1d |
| +34 | Underrated MF/UMM Funds | 44 | 1d |
| +33 | Biggest (avoidable) failures in PE Investments? | 23 | 20m |
| +25 | Large Cap PE Value Creation vs RX shops? (Coming from McK) | 2 | 4d |
| +23 | SGE Final Round (Investment Summer Analyst) - Case Study & Technicals? | 8 | 11h |
| +18 | Senior IR Lifestyle | 3 | 3d |
| +17 | Special Situations | 4 | 5d |
| +15 | Predicted Net Worth in Trodden Finance Path by 60? | 5 | 29m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Fund level capital call facitilies can help IRR and may be what you consider leverage. Some funds also have NAV facilities that provide leverage with security over the underlying assets of the fund.
In your specific scenario though, not on the asset level. If you think about it you're effectively asking the bank to take sub risk in exchange for senior returns.
Right, thank you. Whilst fund level capital call facilities are available, these are usually short term. So they won't be used in the long term to enhance IRR. However, if NAV facilities are provided to the fund in the medium to long-term, then this is akin to a mortgage - the fund owns an asset and is borrowing against that asset. But in this case the mortgage is being provided on the total portfolio of the fund's assets. Would that be the correct way of thinking about it? Leverage is provided on a NAV facility basis, rather than an individual asset (here, each individual loan) basis, as it is to PE funds?
Yeah makes complete sense mate - the bank wouldn't want to take that risk. Especially as they aren't getting compensated for it.
So these NAV facilities... how often do private debt funds 'refinance' them to maximise their leverage? Is it fairly easy, or a difficult, costly & lengthy deal to do with a bank?
Thanks again!
I don't work directly within the team so I can't provide an answer around frequency - generally speaking you would come it towards the late-life of the fund (i.e. when capital is fully drawn), and as far as I know though these are increasingly in demand and we see more and more banks coming into the space.
Adipisci enim molestiae illum molestiae qui accusantium. Beatae consequuntur unde ea. Soluta quas itaque repellendus rerum eligendi minima sequi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...