NAV Financing expands Ardian’s role in the secondary market

Ardian has expanded its role in the secondary market for private equity and infrastructure funds through Ardian NAV Financing. The NAV Financing team platform represented $2bn of AUMs at the end of June 2023 and provides senior debt finance for buyers of secondary portfolios of LP fund interests, secured against the underlying private equity or infrastructure assets.

Ardian NAV Financing’s solutions help to address concerns about the liquidity of private equity and infrastructure investments by facilitating secondary market transactions. They can also enable investors to release cash from their portfolio by providing debt facilities to fund dividend recapitalizations. NAV financing has gained importance alongside the rapid growth in the secondary market over the past few years as large institutions reshape their private market allocations.

Secondary market growth drives NAV financing

“Ardian is one of Europe’s leading providers of private credit, with almost 20 years’ experience in the asset class, and is also the global leader in secondary transactions. NAV Financing sits at the intersection of these two activities and was therefore a natural extension of our offer.”

Annual secondary market turnover, which is closely linked to rising volumes of fundraising in the primary market, is expected to reach $200bn in the near future. Ardian has also seen increased demand recently for this type of debt finance as a result of the decline in banks’ financing capacity.

Diversified portfolios offer a low-risk yield strategy

Ardian launched this activity in 2018 with a multibillion platform that invests alongside leading global banks in NAV financing facilities. The lead bank negotiates the terms of the deal and security is typically augmented by guarantees from the transaction sponsor. Historically, Ardian NAV Financing has taken exposures ranging from $100m to $500m in financings of between $200m and $1bn-plus.

This type of private debt offers the team’s investors a low-risk yield strategy because the underlying private equity and infrastructure portfolios are mature and diversified, with reasonable visibility on future cash flows. Ardian NAV Financing receives an arrangement fee for each transaction along with quarterly, floating-rate interest payments. Current yield can reach 9% p.a combining a spread and the benchmark rate.

High portfolio turnover increases returns

Growing deal flow in the secondary market allows Ardian NAV Financing to maintain a high level of capital at work, maximizing the yield on investors’ commitments. Because the underlying portfolios are mature, frequent exits result in high turnover, which allows the fund to recycle its money quickly. This enhances the return to investors in the NAV Financing platform because it generates multiple arrangement fees over the investment period. Historically, weighted average life of transactions has been below 2 years.

Multibillion debt financing platform

Ardian first-generation NAV financing platform of $2.4bn was fully invested in three years, but thanks to additional LP commitments and rapid recycling of funds it deployed more than $4.2bn during its first five years of operation.

Building on its strong track record over the past five years with its first generation, the team will look to raise a second-generation platform. This will have a broader scope but is likely to continue to focus on large secondary transactions involving mature and well-diversified portfolios of private equity and infrastructure funds.

20 years’ experience in the secondary market

Ardian’s NAV Financing team monitors the loan portfolio using its proprietary database, which is updated at least quarterly and covers more than 250 GPs, 600 funds and 5000 companies. This gives the team good visibility on the valuation of the underlying assets and the portfolio’s future liquidity profile.

The NAV Financing team operates separately from Ardian Secondaries & Primaries, however the team benefits from Ardian’s institutional experience over more than 20 years of investing in secondary deals.