Schulte Private Credit

"Evergreen Funds: Marketing Observations" As private Evergreen Funds continue to grow in popularity, here are some of my observations about how to market them.   - Explanation is required. Evergreen Funds are still new to the private funds market, and many investors are not clear about how Evergreen Funds work. - Outlining the key terms at the outset will save time and misunderstandings as investor negotiations progress. Most important are: o Fundraising is perpetual (subsequent closings do not use a cost plus method) o Lockup period duration o Management fee basis o Incentive compensation basis o Withdrawal process - Ask institutional investors to preview with their counsel the key terms of the fund. Investor-side counsel are highly adept at closed-end fund and open-end fund issues and market terms. But often, they do not appreciate the rationale for an Evergreen Fund’s hybrid terms, which can prolong a document review and negotiation process. - Point out the sensible connection between the target asset class characteristics and the Evergreen Fund’s terms. There are not yet (and may never be) a narrow range of “market” terms for private Evergreen Funds. This is mostly a great benefit for sponsors and investors alike (as compared to using a traditional closed-end or open-end fund structure). Explaining the tailoring of terms up front can help the diligence and negotiations process move smoothly and efficiently. - Set liquidity expectations by explaining expected portfolio turnover. A key feature of private Evergreen Funds is the withdrawal via liquidating account feature – when assets are sold, the withdrawing investor gets its share of the proceeds. Investors can fear that not striking a withdrawal date NAV means they will never get paid out, and providing portfolio turnover expectations can address this concern. Some Evergreen Funds have a “stub buyback option” or “cleanup call” to prevent a long term holding of a fractional remaining interest which can alleviate investor concerns about the payout period. - Educate investors about the sponsor’s investment allocation policy and how the Evergreen Fund will get its share of investment opportunities. Most sponsors of private Evergreen Funds have multiple other investment products: closed-end funds, funds of one, managed accounts, CLOs, Business Development Companies, Interval Funds, etc. Investors who typically invest in closed-end funds expect the fund to have exclusivity/priority to receive suitable investment opportunities. Depending on the sponsor’s other products, an Evergreen Fund may receive certain priority, but usually not absolute or perpetual priority. As I have discussed in other posts, hybrid and customized Evergreen Fund terms are part of their appeal for sponsors and investors. As they become more common in the private funds market, they should become more familiar to investors.  Coming up soon, commentary on fees. #SchultePrivateCredit #EvergreenFunds

Schulte represented Cerberus Capital Management, L.P. in connection with the formation of, and raising of capital by, Cerberus Institutional Partners VII, L.P. (including its feeder and parallel funds, collectively, “CIP VII”), the seventh of the private investment firm’s flagship institutional partners funds. Schulte has represented Cerberus in connection with all seven of its institutional partners fund launches. These funds pursue an opportunistic strategy, with an emphasis on global credit and private equity. The CIP VII strategies leverage Cerberus’ integrated investment platform and proprietary operating expertise to invest in residential and commercial mortgage securities and assets, corporate credit, stressed and distressed corporate debt, non-performing loan portfolios and structured products, and private equity, as well as opportunistic investments in other areas and special situations. CIP VII and its predecessor vehicles have collectively raised over $18 billion. Cerberus is a global leader in alternative investing with approximately $65 billion in assets under management across complementary real estate, credit and global private equity strategies. Specifically, Cerberus’ global credit and private equity platforms manage approximately $49 billion of corporate credit, direct lending, mortgage securities and assets and are leading investors in opportunistic, undervalued, stressed and distressed assets and/or special situations. The Schulte team advising Cerberus was led by Investment Management partners Jason Kaplan and Peter Naismith, Tax partners Alan Waldenberg and David Wermuth, Employment and Employment Benefits partner David Cohen, and Finance partner Daniel Oshinsky. The team also included Investment Management special counsel Christopher Freeman and Finance special counsel Farzaan Ijaz, with Investment Management associates Sean Cunningham, Sarah Heberlig and Milagros Lopez, and Tax associates Michael Jaroslawicz and Hannah Wells. #SchulteLaw

Asset-based finance covers a broad spectrum of investment strategies, but one area that's gaining significant momentum is litigation finance. In anticipation of DealCatalyst's third annual Asset-Based Finance Conference in New York on September 30, Boris Ziser, partner and co-head of the Finance Group at Schulte, sat down with 9fin’s Private Credit Editor, David Brooke, to explore the rising appeal of litigation finance. For insights into the market dynamics and why litigation finance is becoming increasingly attractive to private credit funds and institutional investors, watch the video below. #PrivateCredit #DealCatalyst #SchulteLaw

I'm looking forward to discussing the state of the bank warehouse market with my fellow panelists at the DealCatalyst US Asset Based Finance Conference on Sept. 30. We will examine the advantages and disadvantages of forward flow financing agreements, explore how these arrangements work, and assess the sustainability of this business model in the long term.    Register to join us: https://bit.ly/3XvNjzR  #DealCatalyst #ForwardFlowFinancing #SchulteLaw 

I'm excited to be speaking on the "Asset Avenue - The Opportunity in Litigation Funding" panel at the DealCatalyst US Asset Based Finance Conference on Sept. 30th. My fellow panelists and I will explore the different sub-asset categories that fall under the umbrella term “litigation finance,” their characteristics, as well as the expansion of the market. Register to join us: https://bit.ly/3XvNjzR  #DealCatalyst #LitigationFinance #SchulteLaw 

"Evergreen Funds – Their Appeal to Sponsors and Investors."   Private credit fund AUM has grown more than tenfold over the last 15 years, with growth accelerating more recently as banks have moved away from middle market lending. The size of the asset class and the characteristics of the typical loan or private credit portfolio are driving interest in private Evergreen Fund structures.   What is the appeal of a private Evergreen Fund to sponsors?   - Evergreen Funds can raise capital perpetually. By contrast, closed-end (private equity style) funds – while widely used for lending and private credit investing – require an on-and-off cycle of fundraising to raise successor funds.    - Investment proceeds and current income are recycled perpetually for further investing until an investor elects to withdraw (although a periodic current income distribution option is frequently offered to investors who desire regular income and cash flow).   - Evergreen Fund terms can be tailored to the sponsor’s asset focus. A sponsor does not have to settle for a structure that requires distributions by the end of a set term (required for a closed-end fund), face the pressure of generating cash to pay withdrawal requests within 30-45 days (required for a hedge fund), or attempt to market controversial liquidity controls such as side pockets or withdrawal gates (seen in hedge funds).   - Investment guidelines are usually more flexible than in a closed-end fund, and the investment strategies can evolve over time as market opportunities change.   - Investors evaluating Evergreen Funds are usually receptive to fund terms tailored to match the asset characteristics and the sponsor’s investment objectives, rather than insisting on “market” terms of a closed-end or open-end fund because that is what they “always get.”   What is the appeal of a private Evergreen Fund to investors?   - Control over the duration of their investment. Evergreen Funds have lockup periods, but these are short as compared to the typical term of a closed-end fund. Investors have proven to be more receptive to investing, and less concerned about certain terms, as compared to making a long term (10+ year) investment in a closed-end fund.   - Better predictability of exit timing. Credit assets tend not to be long term holdings. For example, loans tend to be refinanced in 2-3 years, there is a robust market for trading loans, and securitization is a popular exit strategy. Thus, investors can have better predictability over the length of the payout period after an investor requests a withdrawal.   - Easier to upsize. An investor’s decision to upsize is often easier because the fund has been diligenced for the initial investment, and internal approvals to upsize may therefore be quicker as compared to securing an allocation for a successor fund.   In future posts I will discuss the nuances of certain Evergreen Fund terms and typical investor negotiating points.   #SchultePrivateCredit #EvergreenFunds

We're proud to unveil the Schulte Private Credit page, your go-to source for perspectives on the latest developments and market trends within the private credit sector. Our team is dedicated to guiding clients through the dynamic world of private financing, offering bespoke solutions that ensure swift access to capital. Follow our new page to stay updated with the latest announcements, tips and insights from our advisers.   https://lnkd.in/gW-MdzVA   #SchultePrivateCredit

Schulte partner Daniel Oshinsky recently discussed the evolving landscape of collateral loan obligations ("CLOs") with 9fin for their article, "Private credit element brings mid-market closer to BSL CLOs as spread basis narrows." He highlighted how the integration of 'private credit' is bridging the gap between middle-market and broadly syndicated loan ("BSL") CLOs. As an example, traditionally, middle-market CLOs faced stricter limits on covenant-lite ("cov-lite") loans compared to their BSL counterparts. But according to Dan, who specializes in mid-market and private credit CLO deals, the cov-lite basket found in many middle market CLOs has started to increase. “This is especially true for CLOs designed to include the large private credit loans that have become prevalent in the market,” Dan noted. Moreover, an expansion in the investor base for middle-market CLOs has enhanced liquidity for MM CLO investors and also brought spreads closer to the BSL CLO market levels. Read more: https://bit.ly/4d0luGo #SchulteLaw #SchultePrivateCredit

“Demystifying Evergreen Funds”   Among private credit funds, Evergreen Funds have been the hot fund structure for about two years. Since they are newly popular, there is a lot of disinformation and mystery about what exactly the terms of a private Evergreen Fund are. The essential terms are the following:   ·      A hybrid mix of open-end fund terms and closed-end fund terms. ·      Fundraising is perpetual (like an open-end fund). ·      Capital can be raised via commitments which are drawn down over time (like a closed-end fund), or by taking contributions at each closing (like an open-end fund). ·      Investment proceeds are retained for reinvestment (like an open-end fund). ·      In performing credit strategies, investors are usually offered a quarterly current income (interest income) distribution option. This appeals to institutional investors, especially in direct lending strategies. ·      Investors can control the duration of their investment in the fund and choose when to withdraw (like an open-end fund). ·      Withdrawals are paid over time using a liquidating account (thus avoiding pressure to sell assets and to otherwise generate cash to pay withdrawals on a date certain). ·      Investment limitations are flexible (more so than in closed-end funds). ·      Incentive compensation is paid annually (in contrast to a European or American style carried interest waterfall, which takes years to pay out). Private Evergreen Funds most often use a hybrid calculation methodology not used by hedge funds or private equity funds. Private Evergreen Funds are very appealing to sponsors and investors alike, and the market is in the early stages of understanding and acclimating to Evergreen Fund terms. In future posts I will comment further on Evergreen Fund terms, marketability and operations.   #EvergreenFunds #SchulteLaw #PrivateCredit #PrivateCreditFunds #SchultePrivateCredit

Unlike law firms that focus on only open-end or closed-end structures, Schulte’s investment management practice maintains a large and diverse client base of open-end, closed-end and hybrid funds. Our experience representing this broad credit fund client base gives us an advantage in representing diversified credit investors. Our decades of experience in the private credit market make us adept at advising clients on the right fund structure to use for each unique fund strategy. Learn more: https://lnkd.in/geYuhV7P #SchultePrivateCredit #PrivateCredit #DirectLending