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It is no secret that fund managers are becoming increasingly resourceful in their efficient use of leverage in the net asset value (“NAV”) space of the fund finance market. What we have seen since the onset of the pandemic is an increasing number of financing solutions tailored towards family offices and ultra high net worth individuals (“UHNWI”) looking to leverage against their existing limited partnership interests in private funds (“LP Interests”).
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One aspect of NAV loans that lenders often focus on is the risk of “bad acts” by a borrower with respect to the investments that underpin the loans. For our purposes, NAV loans are loans to alternative investment entities (e.g., private equity funds, secondaries funds, hedge funds, funds of hedge funds, pension funds and family office vehicles) that are underwritten, either on a secured or unsecured basis, by the value of the entity’s investments. When entering into NAV loans, lenders assess the investments owned by the borrowers at closing and then continue to monitor such investments after closing for compliance with financial covenants and other loan requirements. Unlike other types of securities financings (think prime brokerage, securities lending and repo, or typical bank margin loans), where a lender or a third-party custodian on behalf of the lender holds or controls the securities on which the loans are underwritten, the underwritten assets in NAV loans are typically owned and controlled by the borrower, either directly or through one or more subsidiary holding vehicles.
This Tuesday, May 24, Women in Fund Finance will launch a new “Reader’s Series” that will feature members of the fund finance community who are avid readers of non-fiction, with an emphasis on topics concerning both social and economic impacts.
The inaugural event will discuss the award-winning book, Dopesick: Dealers, Doctors and the Drug Company that Addicted America by journalist Beth Macy, who is a prolific writer on the opioid crisis. Also discussed will be award-winning Empire of Pain by Patrick Radden Keefe, a staff writer for The New Yorker and a New York Times best-selling author. The discussion will be led by Walt Jackson of Onex Credit, Mike Henry of U.S. Bank, and Cadwalader’s Leah Edelboim. Click here to register in-person or here for virtual attendance.
The Fund Finance Association’s NextGen network announced a May 25th event focused on team construction and personality types, followed by a networking reception. For more information or to register, click here.
Offshore law firm Wildgen this week published a multi-jurisdiction fund finance security guide, with contributions from many of the leading fund finance law firms. The U.S. chapter was co-authored by Cadwalader’s Wes Misson, Brian Foster and Patrick Calves and is available here.
The Drawdown this week published a guest contribution by Mohith Sondhi of OakNorth Bank covering his forecasts for how macro market volatility will impact fund finance. The subscription-required article is accessible here.
Come join WFF’s fireside chat on June 1 with Mary Schapiro to learn how the financial sector is taking up arms in the battle against climate change. To register, click here.
Investec recently published a thought leadership piece on how sponsors can structure additional leverage above the portfolio-company level when a portfolio company is unable to optimize leverage levels directly. To access the piece, click here.
Fitch Ratings released a report this week on private equity collateralized fund obligations and their positive credit performance over the past six months. In the report, Fitch noted that some tranche rating upgrades are occurring as a result of deleveraging. The report is premium content and requires a subscription, but is accessible here.
We are very pleased to welcome several new team members to our Fund Finance group and our firm. We look forward to their contributions as part of our growing practice.
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Wells Fargo is looking to hire a Vice President in either New York or Charlotte for its Subscription Finance Group.
Hark Capital is looking for an Associate to join its team in New York.