(Bloomberg) -- HSBC Holdings Plc’s asset management arm has launched a net-asset-value financing strategy, a fund that will help private equity firms borrow against their portfolios, its first such offering as part of an expansion of its alternative credit business.
The fund, which originates so-called NAV loans, is expected to raise as much as €1 billion ($1.1 billion), Borja Azpilicueta, the head of global capital solutions for HSBC Asset Management, said in an interview with Bloomberg News. HSBC AM is expecting the fund to make between 10 and 15 loans backed by private equity portfolios, the majority of which are set to be rated investment-grade.
“We think a lot of the focus on NAV financing is a result of PE moving to a new phase with longer hold periods,” Azpilicueta said. “We’re going to have a strong focus on the use of proceeds of these transactions, looking mainly at financing deals to grow portfolios.”
Net-asset-value, or NAV, lending has grown in popularity in recent months, as private equity firms seek ways to return cash to investors given a lack of deals to exit their investments. This type of funding allows firms to issue debt secured against the net-asset value of the portfolios they manage.
While NAV is proving increasingly commonplace among buyout firms, some leading industry figures are sounding the alarm about the use of such “creative” tactics, given the higher levels of leverage such deals employ.
HSBC AM’s NAV fund follows the launch of its revolving credit facility strategy in November 2023, which invests in revolvers issued to private equity-owned businesses across Europe. HSBC AM’s alternatives business had $71.1 billion in combined assets under management and advice at the end of June, with $6.6 billion dedicated to alternative credit.
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