By Joanne McEnteggart, Global Head of Debt, Capital Markets and Corporate, and Justin Partington, Global Head of Fund and Asset Managers
While private credit continues to grow in 2024, it’s vital investors stay compliant. In this article, we’ll share insight into recent regulatory compliance developments and industry best practices in the world of private credit.
ILPA released NAV-based facilities guidance
Institutional Limited Partners Association (ILPA) has issued its much anticipated guidance for Limited Partners (LPs) and General Partners (GPs) around the use of Net Asset Value (NAV)-based financing facilities in private equity strategies.
This guidance addresses growing concerns about the costs and risks associated with financing tools.
What you need to know:
- Increased utilisation: Pitchbook predicts that NAV-based financing could increase sixfold by 2030. While these facilities can be useful for capital structuring and financing assets, their current application raises concerns for LPs
- LP concerns: LPs have reported issues including insufficient insight into when NAV-based facilities are used, outdated Limited Partnership Agreements (LPAs) that lack relevant provisions, and GPs often using these facilities without LP or Limited Partner Advisory Committee (LPAC) notification
- ILPA recommendations:
- LPAC consent: GPs should seek LPAC consent before implementing a NAV-based facility if the LPA doesn’t explicitly cover this
- Approval for distributions: GPs should obtain LPAC approval for NAV-based facilities used for distributions, irrespective of LPA language
- Conflict of interest: Any conflicts of interest related to NAV-based facilities should be disclosed to the LPAC
- LPA language: New LPAs should include clear terms about NAV-based facilities to establish expectations and safeguards
- Discussion and disclosure: LPs should proactively discuss NAV-based facilities with GPs to ensure older fund documents align with current practices, and GPs should provide standardised disclosures about these facilities to all LPs once they’re in place
The guidance also includes detailed regulatory recommendations and sample legal language for new LPAs, as well as disclosure templates to aid in the implementation of these practices.
Overall, the ILPA’s guidance aims to improve transparency and facilitate better communication between LPs and GPs, addressing key compliance concerns related to NAV-based financing facilities in the private equity sector.
Read the full report here.
New law on non-performing loans in Luxembourg
Luxembourg has enacted a new law which came into effect on 22 July 2024 concerning the transfer of non-performing loans (NPLs). This legislation, designed to implement Directive (EU) 2021/2167 on private credit servicers and private credit purchasers, introduces a comprehensive legal framework aimed at facilitating the off-balance-sheet transfer of NPLs from banks.
The primary goal of the law is to develop a robust secondary market for NPLs and to reinvigorate securitisation practices, in alignment with the objectives outlined by the European Commission. By doing so, the law seeks to enhance liquidity in the banking sector, reduce the burden of NPLs on financial institutions, and stimulate economic activity.
In response to this legislative shift, we’re anticipating a surge in the activities of NPL securitisation vehicles.
Talk to IQ-EQ
The world of private credit is constantly shifting to stay in line with market changes, which can make staying compliant a complex task. IQ-EQ offers a comprehensive suite of services to support NPL securitisation vehicles, including corporate administration for SPVs and funds, specialised fund services, and AIFM services.
We’re here to support you. Contact us today for more information.
About the authors
Joanne is IQ-EQ’s Global Head of Debt, Capital Markets and Corporate, based in Dublin. Joanne has over 20 years’ experience in the financial services sector, including with Ireland’s largest insurance company, one of Ireland’s leading stockbrokers, and a ‘Big 4’ accounting firm, among others – during which time she has built up significant depth of expertise in corporate administration and debt/loan servicing.
Justin is IQ-EQ’s Global Head of Fund and Asset Managers, based in Luxembourg. Justin has international experience in the alternative fund services sector, including senior postings in Canada, UK, the Cayman Islands and Guernsey. He’s an expert in the operation, delivery and marketing of fund and investment administration in the alternative asset space.
