Key takeaways from the 8th European Fund Finance Symposium

Our Fund Finance team members from London, Luxembourg and Ireland attended the 8th Annual European Fund Finance Symposium in London again this year.

The Fund Finance Association's annual symposium brings together investors, fund managers, bankers and lawyers to discuss trends within the fund finance market.

Amongst those in attendance was our partner Anthony Lombardi, who spoke on the “Hot topics and Trends in Fund Finance” panel, which provided key insights on the recent evolutions in the structuring of fund financings considering the market conditions.

Read on to discover our experts' key takeaways from the event:

• Compared to the challenges of a difficult 2023, we are seeing increased resilience and realism amongst market participants. Markets are undoubtedly eagerly awaiting central banks’ moves before they begin deploying the massive dry powder accumulated over the past years due to the macro-economic environment.


• Given the slower fundraising and tougher exit environment, funds, in particular, continue to face an increasing need to access liquidity. The evolutions we observed a year ago continue to accelerate, with lenders and borrowers looking beyond simple capital call facilities to increasingly sophisticated transactions and leverage products. These include more structured fund financing solutions such as the securitisation of capital call books, rated/levered feeders, NAV financings and Collateralised Fund Obligations. There are also an increasing number of discussions regarding ratings in fund finance transactions, with certain lenders requiring ratings and others viewing ratings as an avenue for borrowers to unlock further liquidity.


• The so-called “NAV financings 2.0” appear more complex, with enhanced due diligence and structuring processes. The “V” in the “LTV” metric is an increasingly important point of focus for lenders, with tightened monitoring. The Financial Conduct Authority is expected to review private fund valuations, and this may impact the above point.


• Continued balance sheet constraints (particularly with Basel IV approaching) and the current interest rate environment may continue to impact origination of new deals by traditional lenders. Different lenders will also have varying appetites to concentrated borrowing bases, SMAs, feeder funds, HNWIs. Advance rates will vary from one credit provider to another depending on their credit risk appetite.


• With augmented agility in responding to liquidity demands, private debt providers are occupying more space in the fund finance market by offering tailored-made solutions (e.g., smaller tickets with accordion features, more flexibility in eligibility tests, the ability to lend against challenging assets such as real estate or VC debt and covenant lite/security lite structures).


• Insurance backed credit funds have historically focussed on matching investment tenors and therefore favoured term loans with certainty of payments. However, such funds are now increasingly willing to consider RCFs and delayed draw facilities and have developed the operational and hedging capabilities to execute tranches.


• The secondaries market continues its growth trajectory with GPs motivated to hold on to assets for longer with a view to maximise returns. There has been a resulting growth in fund finance solutions offered to secondaries funds for the purposes of their acquisitions in underlying investments and this trend is expected to continue.


• Flexibility, adaptability and listening to the borrower’s liquidity needs at the particular point in the fund's life cycle are key differentiating factors for both banks and non-bank lenders competing in the wider market. Borrowers are also keen to see the continued innovations of tailored fund solutions.


• Whilst the use of NAV facilities and back leverage are not new financing tools for funds, the use case for these types of products has spread across the fund eco-system. Consequently, a much larger pool of LPs is now having to focus on different types of leverage used by GPs.


• While GPs had maximum latitude in structuring the financing of their funds in the past, LPs are certainly more focused on the types of leverage being used by GPs (including back leverage), how the debt mechanics work, and may require additional limitations in fund documentation. Accordingly, the market anticipates (as it did with capital call facilities) that standard terms in debt documentation and/or fund documentation will begin to develop.


• The industry unanimously agrees that LPs now expect GPs to have much more skin in the game and consequently the activity in the GP financing space is growing.


• An influx of capital into the space from high-net worth individuals and quasi-retail investors forming part of the capital base has been noted across the board, despite the regulatory and practical complexities arising from retail capital. This may pose challenges in terms of borrowing base availability when compared to the traditional investor pools. It will require some creative thinking as lenders get to grips with the type of due diligence required to advance against high-net worth individuals and quasi-retail investors.


• To summarise, the era of innovation in the fund finance market continues apace, with space for the proliferation of bank and non-bank lenders, insurers and credit funds offering a range of credit solutions. Portfolio managers who seize the opportunities to build relationships with lenders will be able to optimise the use of financings across the different stages of the fund life cycle.