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Lending

AllianceBernstein launches NAV lending initiative

AllianceBernstein unveiled its new NAV lending business with a $500 million anchor investment from its insurance parent, Equitable Holdings.

AllianceBernstein, the asset management arm of US life insurer Equitable Holdings, said Tuesday it launched a new business focused on providing net asset value-backed loans, or NAV loans, to private market fund managers, a specialized but fast-growing market.

The initiative, dubbed AB NAV Lending, received a $500 million anchor investment from its 60% owner, Equitable, and the firm plans to raise more money to invest alongside the cornerstone capital, according to Patrick Fear, a managing director and founding member of AB Private Credit Investors, the direct lending platform of AllianceBernstein. Fear will serve as chair of the new NAV lending business, providing strategic guidance and support.

Fear said the firm will target insurers, among other types of institutional limited partners, for the remaining capital.

AllianceBernstein’s move underscores investor interest in capitalizing on private equity managers’ surging demand for fund-level financing.

Industry participants expect the NAV facility market will grow to $600 billion by 2030—six times the roughly $100 billion estimated by the Fund Finance Association in 2022—according to PitchBook’s upcoming analyst note NAVigating Considerations and Controversies Around NAV Loans.

“The awareness of the value-added use cases of this product is still in an early stage relative to where it will end up,” Fear said. “We think there will be a large, growing opportunity to intelligently deploy scaled capital when that awareness permeates the market.”

He added that the risk return profile of NAV loans make them an attractive asset, particularly for insurance investors. Lenders typically originate NAV loans at a 5% to 25% loan-to-value ratio and request protective covenants that grant investors a significant valuation cushion if the underlying portfolio underperforms.

As its initial focus, AB NAV Lending will invest in investment-grade rated NAV loans and target mid-sized and large buyout funds in North America, Fear said.

AllianceBernstein hired two fund-finance veterans to build out its NAV lending team. Dupe Adeyemo, a former managing director at Barclays, was brought on as head of NAV lending. Sara Casey joined as director of NAV lending from Hark Capital, an NAV lender to PE and VC funds.

PE firms in recent quarters have been tapping into nontraditional ways to return distributions to their LPs and manage the leverage and the liquidity of their portfolio companies—a byproduct of the pullback in bank lending, the challenging exit environment and the difficulty in securing cheap debt capital for LBO financing.

The value of global PE exits stood at $591.8 billion through Q3 2023, down significantly from its 2021 peak of $1.8 trillion, according to the analyst note. Consequently, GPs have returned less capital to their investors.

As of Q2, the average annual distribution for buyout funds between five and 10 years old was 13.1% of the starting value of these funds in Q2 2022, the lowest reading in more than a decade. In contrast, the figure in Q4 2021 was 39%.


Featured image by Luis Alvarez/Getty Images

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