The Fund Finance Association’s annual Global Symposium in Miami kicked off Monday, with some 2,100 attendees.
Below, Private Funds CFO brings you our insights from day one of the event. Enjoy!
Banks back in business?
Attendees may have been surprised to see a delegation from Citi at the confab, given the bank pulled away from its subscription line lending business, as reported last year.
Private Funds CFO couldn’t immediately determine whether the bank’s presence marks a return to that business, but rumors had it that it has been making a push to enter into the market for NAV lending on private equity portfolios.
Banks have been long known for saying they’re active in NAV lending on private equity portfolios (many are indeed active in providing facilities on diverse pools of LP secondary interests) while, for the most part, sitting on the sidelines. And now that punishing Basel III capital rules are coming into place, one would think it would not be the most opportune time to begin actively lending in that space.
K&S makes its FFA debut
Monday’s offsite networking events included 17Capital hosting a soiree at Soho Beach House and a charity fundraiser at Villa Azur, hosted by King & Spalding in collaboration with Teenage Cancer America and The Pamela Ann Furze Foundation. The event was organized by the firm’s fund finance vet, Samantha Hutchinson, who last year moved from Cadwalader, bringing with her a band of her colleagues.
Mark Ronson
Guests at the event (including Private Funds CFO) were treated to live performances by British pop star Sophie Ellis-Baxter, followed by headliner Mark Ronson (known for hit songs including ‘Uptown Funk’). Among the prizes auctioned off were a guitar signed by Oasis’ Noel Gallagher (which went for some £11,000 ($13,915; €13,260), and the winner was promised a phone call from the man himself) and a jersey signed by David Beckham.
But that appears to be the case, nonetheless. Goldman Sachs’ formation of a capital solutions group, along with its purchase of a portfolio of loans from Signature Bank in 2023, is part of a push to lend to funds throughout their lifecycle. Deutsche Bank, too, is taking a ‘holistic’ approach to fund finance.
And Axos Bank, whose fund finance platform is headed by Signature alum Trevor Freeman and which has been a major new player in the sub line market, is said to be looking to enter the NAV loan market.
One panelist at the event on Monday commented: “This dimensional consideration of, ‘This is a sub line, this is a NAV line. We don’t do NAV lines, we don’t do sub lines’ – I actually think that those concepts are graying in a lot of ways.”
The opportunity lies, rather, in finding ways to offer liquidity to sponsors in whatever structure suits them best, the panelist said.
The change in focus among banks from lending at the early stages of a fund’s lifecycle to its later stages may be in part due to funds having faced years of challenges in the fundraising market – so much so that some are pausing fundraising efforts or even declining to raise new funds in order to focus on increasing distributions from existing ones (Crestview and Vestar are among recent examples). Fundraising timelines have hit a record 19 months, according to affiliate title Buyouts.
Indeed, another banker suggested that among the next set of true innovations in fund finance will be end-of-fund solutions. As existing funds come to their ends, managers will be eager for capital to raise new funds and LPs will be eager to take their remaining distributions and redeploy them.
“That process is not as efficient as it could be,” the banker said. “There needs to be more end-of-fund solutions.” In other words, why should managers wade through 19 months of fundraising when they could take out a loan and start deploying right away? Such an approach might help managers mirror the currently extremely popular tactic of deal-by-deal fundraising, which can help attract LPs since managers have living examples of what they’ll be invested in, instead of a blind pool.
Awash in liquidity
But the pivot in focus from sub lines to hybrids, NAVs, total return swaps and other later-cycle liquidity solutions may also be because the market for the former is suddenly a little crowded.
“There’s just a ton of liquidity in the market,” said one attendee from a large-cap GP. Many banks began pulling back on sub line lending in recent years, either entirely (for the likes of Citi) or focusing only on their top relationships.
Once again, it would be reasonable to expect that to remain the case, or even worsen, with new capital rules coming in that, in theory, almost completely wipe out the economics of sub line and NAV lending for banks (although one sub line banker noted that draconian capital treatment of sublines could be ameliorated by offering 364-day lines that need to be refinanced yearly, rather than the traditional multi-year lines).
But means of mitigating the effect of capital rules have emerged, supporting supply, including synthetic risk transfers. Alternative lenders are also increasingly active, and ratings have helped attract third-party investors. All of which has led to a “very orderly spread compression,” the GP said.
We’ll be back with more soon, so keep an eye on your inboxes!
And if you want to share any news or tips (on background is acceptable), hit me up at [email protected], or text me at +1(530) 282 6772.
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