BCLP

PE fundraising looks to be ending the year with a fizzle, coming in below 2023 numbers. More concerning is the concentration, with almost half of all capital raised by 16 mega funds and a full 83.6% raised by firms with 4 or more funds. PE has been in what PitchBook describes as a 'vicious cycle' for 2 years, "Funds struggled to exit their investments at strong valuations, dragging down their distributions to LPs and limiting the amount of capital institutional investors had available to commit to new or subsequent funds." With more rate cuts expected and widespread optimism for a return of dealmaking, 2025 could be PE's rebound year. LPs are expressing more interest in funds across the $500m - $1.5b range, as LMM + MM present a target rich environment with clear paths to liquidity. Most of PE has had difficulty managing their flow of funds - both raising capital from LPs and sending money back to them. Sponsors that can navigate the evolving market and demonstrate an ability to unlock liquidity will have an early mover advantage. #PrivateEquity #Liquidity https://lnkd.in/ejNPQZmW

Fund Finance Partners released a NAV loan index to shed some light on the opaque world of PE fund liquidity. With the market expected to double to over $300b in 2027, NAV loans are becoming a more commonplace tool employed by fund managers and points to a growing demand for fund finance products. Most NAV loans are being used as leverage to deploy more investment capital, underscoring the persistent fundraising challenges sponsors face due to a few years of anemic exits. Funds that have been shoring up their portfolios and strengthening platform investments should be well positioned to capitalize on a rebound in dealmaking, which Blackstone anticipates is right around the corner https://bit.ly/49zP6cw. It will be interesting to see how fund finance evolves as the market recovers and LPs start to see more distributions. Managers that successfully utilized financing to survive or augment their strategies will be rewarded for their creativity, and continue the normalization of fund liquidity solutions. #PrivateEquity #Liquidity #NAVloans #FundFinance https://lnkd.in/e8A7aicN

Debt issuers are anticipating a rebound in the 2025 private equity M&A market, which would be accompanied by a strong demand for liquid, private and structured credit solutions. Firms are bulking up their capacity to address this expected increase in deal volume and size, fueled by investors' attraction to the risk-adjusted return profile of the asset class. Blackstone's CIO of global credit & insurance, Michael Zawadzki, asserts that the credit market's transition to private debt is still in its early stages, and adding to their repertoire of offerings will make issuers more competitive and positioned to win more deals. #PrivateEquity #Liquidity #PrivateCredit #M&A https://lnkd.in/e2ThxW6q

Using NAV loans as a liquidity bridge until a better dealmaking environment arrives has become an increasingly popular way to delay losses for PE firms. Not having to sell assets at the wrong time is attractive for sponsors, even if the financing will depress returns over the long run. But now that NAV lenders are themselves seeking to leverage their investments, the industry is starting ask whether this presents systemic risk. Loading debt on top of debt, which in turn sits on top of portfolio company debt, could compromise equity investors' positions. #PrivateEquity #Liquidity #NAV #PrefEquity https://lnkd.in/ehCVM5yQ

With more than half of fund managers estimated to now use some form of credit line at the GP or management company level, LPs are understandably concerned about preserving alignment. There are a number of structures for sponsors to choose from, while the market continues to evolve and innovate as a response to the macro environment's demands. Sponsors now have more flexibility than ever in the application of liquidity to meet their specific needs; firms tapping this leverage as a way to increase their strategy exposure can be a strong positive signal. While this ever-expanding menu of solutions and use cases are a boon to asset managers, it also increases the chance of manipulation. Transparency and a fiduciary commitment to maximizing LP returns are of the utmost importance to assuage rising concerns among the LP community about the risks of increasing usage. #PrivateEquity #Liquidity #PrefEquity #FundFinance https://lnkd.in/eAzTPJDB

PE managers are increasingly looking to finance growth through flexible capital solutions that are non-dilutive, self-liquidating and repaid from future portfolio realizations. With over $500b of PE sponsor enterprise value, there is a large and growing market opportunity for liquidity solutions. BCLP is actively in the market bringing our bespoke financing to the PE asset class. #PrivateEquity #Liquidity #FundFinance #PrefEquity https://lnkd.in/gCFpGXcZ

Expect to see more firms targeting aging PE assets for acquisition, such as Mubadala Capital's latest vehicle looking to snap up positions from firms under pressure to generate distributions. #PrivateEquity #Liquidity #Secondary #PrefEquity https://lnkd.in/gFgCCb4s

PE firms went on a "debt-fueled buyout binge" through the early days of COVID, but an aggressive tightening cycle and persistently higher rates are beginning to show signs of stressing those highly levered businesses. The rise of PIK as a percentage of private credit funds' income (23.6% at Blue Owl Capital!) could be a problem in the long term if counterparties are unable to service the growing debt burden. These paper gains may become a drag on actual fund returns, and it may take some creative financial engineering to solve yet another liquidity crunch. #Liquidity #PrivateEquity #PrivateCredit #PIK https://lnkd.in/eM8umEgx

In a sign of the times, even firms offering GP liquidity solutions are employing creative financings to make distributions. Using the positions in sponsors they have acquired as collateral, Hunter Point Capital LP is taking on debt to pay LPs a dividend - a strategy other firms may emulate since GP stake realizations are rare. #PrivateEquity #LBO #Liquidity #GPstakes https://lnkd.in/e44WjUyY

Not all DPI is equal - LPs are becoming wary of liquidity mechanisms used to inflate DPI, such as synthetic realizations derived from NAV loans and dividend recaps. LPs, and the ILPA, are getting more nuanced when analyzing GP returns, paying particular attention to how distributions are being generated. #PrivateEquity #Liquidity #ILPA #DPI https://lnkd.in/euvbQFkb