Fund Finance Partners’ Post

I consider myself privileged to work with and learn every day from the incomparable Zac Barnett! Here are some market insights that Zac recently shared with Private Funds CFO.

“As we look forward, it’s clear that growth in NAV finance will likely continue to be correlated with the expansion and evolution of the global private equity universe, which has seen its total AUM increase by roughly 15% annually on average over the last ten years. Importantly, the AUM of private equity funds that are beyond their investment period – the target market for NAV finance – is expected to rise to more than $5.5 trillion in 2030, a roughly 60% increase since 2020.” Good primer and outlook on NAV loans from Armen Panossian of Oaktree Capital Management, L.P. https://lnkd.in/e4xwdQqi #privateequity #privatedebt

In the private markets, subscription line financing has been a crucial tool for fund managers, offering greater control over cash flow. However, the landscape is shifting due to rising interest rates and constrained supply, making these facilities more costly and challenging to secure. Also known as sublines, these bridge financing facilities are typically secured against and repaid by LP commitments. But in today's market, the process of securing them can be lengthy and difficult. Addressing these inefficiencies, one UK company, Bridge, founded by Andrew Frazer Smith, formerly of NatWest Group, has launched an online finance marketplace to connect borrowers with lenders. After its debut in the UK and Europe, Bridge is now making its mark in the US. Frazer Smith spoke with PitchBook about the current state of the fund finance market and how technology is being leveraged to enhance it:

Fund finance: how to unlock scalability with growth - https://lnkd.in/eNr8jFKp Fund finance is witnessing exponential growth, but this comes with escalating operational requirements for sponsors and lenders as they scale these facilities. Sumit Gupta, Co-Founder and Managing Director of Oxane Partners – named New Solution of the Year at the Private Equity Wire European Credit Awards for its leverage facility management solution – shares how sponsors and lenders can unlock scalability as they grow.

The challenging fundraising environment, in large part due to a slow exit market, has increased the demand for alternative financing solutions. BCLP enables asset managers to leverage existing positions to free up liquidity using structures tailored to address their specific capital obligations. https://lnkd.in/eV657ixM #PreferredEquity #Liquidity #PrivateEquity

With the Miami Fund Finance Symposium coming up next week, we are looking ahead to the trends shaping this rapidly growing and exciting area of the financial market. Despite market turbulence and headwinds in 2023 by way of some smaller bank failures and increasing SOFR, the Fund Finance market has continued to respond and adapt. Some key trends have seen a shift in fund sponsors seeking relationships with larger and more stable Tier 1 banks, NAV loans gaining increasing traction, and continued use of subscription financing. This article from PrivateFundsCFO discusses 5 Key Trends Shaping Fund Finance. Written Aug 23, these takeaways seem likely to hold true for 2024 - all indicators pointing to this being a market poised for continued expansion!

This Finance Magnates article highlights some of the benefits of using the Alpha Match platform for connecting funds with finance, including: ☑ It enables private capital funds to efficiently find financing from a database of over 290 lenders. ☑ The platform aims to provide transparency and best execution in the fund finance market. Read the article ➡ #fundfinance #alphamatch #connectingfundswithfinance #privatecapital #fundmanager

Fantastic to see Bridge featured in Private Funds CFO today.   Read the piece in full through the link below, and many thanks Tom Auchterlonie for speaking to our founder, Andrew J. Frazer Smith.   https://lnkd.in/ekAEZdum   #fundfinance #subscriptionlines #finance

Thanks a lot, Rede Partners LLP for sharing your report on NAV financing - a hot topic right now when distributions to LPs are drying up. What I consider the most relevant finding is that LPs clearly differentiate between "money-in" (financing of new investments) and "money-out" (dividend recap at the fund level) NAV financing. Essentially "money-in" delays capital calls - something that LPs apparently appreciate - while "money-out" is a synthetic distribution to artificially boost DPI - when LPs would rather see real DPI. And to make matters worse: synthetic distributions are often recallable, so LPs are still on the hook for that cash! I have the strong view that synthetic distributions distort DPI, the otherwise reliable cash-on-cash private equity performance measurement of choice, making it as subjective as IRR or RVPI/ TVPI. At Multiplicity Partners, we manage funds investing at the intersection between private market secondaries and special situations with a focus on delivering real DPI and returning cash to investors quickly. #privateequity #secondaries #privatemarkets https://lnkd.in/ePEF7seM

ILPA NEWS To everyone interested in fund finance and NAV-based lending, ILPA has issued a guidance paper on NAV-Based Facilities for LPs and GPs (focused on Private Equity strategies). I have listed a few key takeaways below: ▪ The market for NAV-based facilities is expected to grow from USD 100bn to USD 600bn by 2030 (according to FFA) ▪ Most commonly, GPs use the proceeds from NAV-based facilities following the end of the Investment Period to create early distributions (~20%), to generate liquidity to support the portfolio (~80%), or to fund follow-on investments. ▪ LPs should ensure that a fund's use of NAV-based facilities is adequately and explicitly regulated in the LPA (limits and purpose as well as governance and transparency requirements). ▪ Unless permitted in the LPA, ILPA recommend that GPs should seek LPAC consent prior to implementing a NAV-based facility. ▪ Use of NAV-based facilities to support the portfolio is typically less problematic than for early distributions. ▪ LPs should look out for GPs boosting their headline performance figures (IRR/DPI) for fundraising purposes by use of NAV-based facilities (early distributions). ▪ ILPA has proposed a standardized disclosure format on NAV-based facilities that GPs should provide to all LPs within the fund once they have been put in place. ILPA's guide is available on www.ilpa.org. If you want to know more about fund finance in the Danish market, I like to refer you to the Danish Chapter on Fund Finance in GLI's comparative legal guide on Fund Finance Laws and Regulation 2024. The Danish chapter is available free online here https://lnkd.in/dnDY6D-T