We apply our global ratings framework to various alternative investment funds whose investment strategies span private and public equity, venture capital and private debt, as well as hedge funds and other investment companies that share key characteristics of AIFs.
Alternative investment funds (AIFs) are increasingly turning to credit markets through net asset value facilities, capital call facilities, subscription lines, and bond issuance to diversify and optimize funding, as well as focus on credit investment strategies including private loans.
Funds can use debt throughout their lifecycles to meet their evolving needs. At inception, funds use short-term subscription lines to fund their investments prior to capital calls from limited partners. They secure these lines against the uncalled capital from these same partners, with the lines' capacity diminishing as capital is called and extinguishing as the fund becomes fully deployed. At that stage, funds can turn to secured financing, or net asset value facilities, to lever or lock in their returns and support their portfolio companies. These facilities are secured against the value of the fund's asset base.
S&P Global Ratings has provided transparency on this expanding market since 2006—and our coverage and criteria have evolved.
We apply our global framework for rating AIFs (updated most recently in 2021) to various funds and other investment companies that share key characteristics of AIFs, including private equity funds, venture capital funds, investment companies, listed equity funds, private debt funds, real estate debt funds, and hedge funds.
Key rating factors include the fund's risk-adjusted leverage, funding, and liquidity. Our analysis calculates the stressed leverage for different types of funds, captures the risks relating to the funding and liquidity of different fund structures, and provides clarity on how we rate instruments issued by AIFs.
HOW WE RATE ALTERNATIVE INVESTMENT FUNDS
At inception, alternative investment funds use short-term subscription lines to fund their investments prior to capital calls from limited partners—secured against the uncalled capital from these same partners, with the lines' capacity diminishing as capital is called and extinguishing as the fund becomes fully deployed.
Our subscription line criteria (published Aug. 30, 2024) primarily addresses the likelihood that committed limited partners provide called capital when requested to allow for repayment of a subscription line on time and in full.
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