Risk and Return of NAV-based Lending
Thought Leadership Webinar: This webinar focuses on the two “C”s of credit of NAV-based lending relevant to the current environment: “Capacity” and “Collateral." The Capacity component entails forecasting the cash flows coming from the underlying limited partnership fund which involves specific modeling techniques that do not arise often in other areas of lending risk management. Also, as the name implies, NAVs lending relies on the value of the collateral. Almost exclusively, the NAV estimates are provided by General Partners. The analogue of this is asking a home mortgage borrower how much their house is worth instead of doing an independent appraisal. Using GP-supplied NAV value for the basis of collateral worth is unreliable and requires an independent economic value estimation, which builds upon the forecasted cash flow models. By implication, this type of approach encompasses broader classes of private asset-based lending like commercial mortgages, and loans to infrastructure projects.
Presented By:
Emilian Belev, CFA, ARPM
Head, Enterprise Risk Analytics, Northfield Information Services Inc.
Date:
July 22, 2020
Time:
10:00 a.m. - 11:00 a.m. EDT
3:00 p.m. - 4:00 p.m. BST
Session Length:
60 minutes
With the advance of private asset investments by asset owners over the last several years, financial engineering developed into new vehicles to provide leverage and liquidity. The vehicles often times take the form of customized lending programs that overcome the investment constraints of Limited Partnership Agreements where the collateral resides. This is needed to assure smooth cash flows and target leverage at the fund level. Traditionally, this type of lending was provided to General Partners who resorted to it when non-collateral lending revolving programs had been exhausted.
The recent pandemic and ensuing financial market liquidity crisis brought these type of lending vehicles to the forefront. With revolving credit facilities drying up and coming up for repayment, the NAV-based lending proliferated, both from specialized lenders, as well as from traditional banking institutions. Limited partners faced with new capital calls and other liquidity issues also started seeking this form of borrowing.
With such development, the need for adequate measures of risk of these lending vehicles became more pronounced. Assumptions of borrowing risk metrics from the public markets, like credit spreads, would be done more out of lack of anything close to bespoke analysis, rather than any real economic justification.
| About Our Expert |
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Emilian Belev has led the research and development of Northfield's Enterprise Risk Analytics at Northfield for about two decades. He is responsible for an integrated framework of multi-asset class analysis. The range of modelled assets under his responsibility includes equity, fixed income, currency, interest rate, and credit derivatives, structured products, directly owned real estate, private equity, and infrastructure. He has introduced innovative methodologies in the areas of convertible bond analytics, pricing path dependency, credit risk analysis, and optimal investing in infrastructure, commercial real estate, and private equity. Emilian has presented on some of these topics at industry events internationally and published research in peer reviewed journals and book chapters.
Prior to joining Northfield, Emilian was with State Street Global Advisors. Emilian is an actively involved CFA charter holder, a recipient of the Certificate in Advanced Risk and Portfolio Management, and a member of the PRMIA expert advisory group for Market Risk.
Emilian is a winner of the 2013 Professional Risk Management International Association Award “New Frontiers in Risk Management”, and recipient of the 2015 American Real Estate Society Award for Best Practitioner Research. He enjoys part-time teaching of finance graduate students and industry professionals on topics of risk management, in addition to his full time industry involvement.
His research passion is the connection between valuation and risk for private assets. This led him to become one of the co-founders of cash flow and valuation analytics firm Aspequity, which closely partners with Northfield on multi-asset class assignments.
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| Continued Risk Learning Credits: 1 |
PRMIA Continued Risk Learning (CRL) programs provide you with the opportunity to formally recognize your professional development, documenting your evolution as a risk professional. Employers can see that you are not static, making you a highly valued, dynamic, and desirable employee. The CRL program is open to all Contributing, Sustaining, and Risk Leader members, providing a convenient and easily accessible way to submit, manage, track and document your activities online through the PRMIA CRL Center. To request CRL credits, please email [email protected].
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Members (Sustaining, Corporate, RIM & Contributing)
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COMPLIMENTARY |
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Non Member |
$30 USD
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