2 November 2022 - Shiraz Allidina, Managing Director, Citco Capital Solutions, Citco Fund Services (San Francisco) Inc., recently sat down with Real Deals to discuss trends in lending, rising interest rates, market turbulence, and more.
What would you say are some of the most important recent trends in lending to alternative funds?
Two trends come to mind: one long-term, the other more immediate. The long-term trend is the continuing acceptance of NAV (net asset value) financing – credit facilities that are underwritten by the lender with respect to, and whose primary collateral consists of, the net asset value of positions held by the fund. We believe the pandemic and associated volatility accelerated this trend.
Borrowers initially used these facilities to “play defence”, in order to help their portfolio companies in times of financial stress. Subsequently, they used these facilities to “play offence”, typically to make follow-on investments in order to better fulfill their mandates to maximise risk-adjusted returns to investors.
We have seen new entrants on the lending side, and continued activity from existing lenders. Overall, it is a healthy market, where both borrowers and lenders have maintained their discipline and exercised prudent risk management. Looking forward, there have been predictions of large growth for this market, which we agree is likely.
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