Jan Sysel and Adam Summers, Partners at Fried Frank, join Cadwalader’s Mike Mascia in this week’s podcast edition of Fund Finance Friday: Industry Conversations. Jan and Adam cover what Fried Frank is seeing in fund formation and fund finance as the market stabilizes into month three of the disruption. They cover the current fundraising market and the pipeline for subscription facilities, and give forecasts around the impact on NAV facilities of mark write-downs when 2nd quarter financials become available. Adam also provides an update on the leverage finance markets.
Jeff Maier, Senior Managing Director – Private Equity Finance at First Republic Bank, published a May 15 article on LinkedIn titled “Sailor! I Order You to Give Me a Market Deal! – The Subscription Credit Facility Market in the COVID-19 Era.” The article discusses the application of “market” concepts within the context of bespoke fund structures and investor scenarios. It also includes a recipe for a Fund Finance Mai Tai.
Arthur Cox recently published “Fund Finance: Market Update,” providing a summary of issues and trends they are seeing in fund finance during the pandemic, including changes observed in market activity, expectations with regard to pricing, and how regulators have been responding to issues caused by the disruption to business.
Private Funds CFO circulated a newsletter Monday highlighting, among other things, a potential trend for limited partners to use leverage as a way to meet capital call obligations, including lenders providing NAV loans to help manage cash flows during low distributions and continuing capital calls.
Mourant hosted a webinar panel last Friday, discussing COVID-19’s impact on private equity and fund financing, with a focus on Asia-Pacific as well as potential industry-wide effects. The panelists discussed the lack of LP defaults, COVID-19’s impact on the secondary market, lender appetite for financing new subscription facilities, the importance of GP-LP and sponsor-lender relations and future opportunities in fund finance.
Fund finance clearly survived the opening flurry of COVID-19 punches. Our transaction structures held solid; deal volume for many market participants actually accelerated through March and April and into May. And we are still busy on new deals. But I think this is going to be a long game. Below are my updates on what we have seen in the market the last two weeks and what I’m forecasting going forward.
Jesse Hurley, Head of Global Fund Banking at Silicon Valley Bank, connected with Cadwalader’s Mike Mascia in this week’s podcast edition of Fund Finance Friday: Industry Conversations. In the podcast, Jesse covers what Silicon Valley Bank is seeing in their fund finance portfolio, including investor capital call funding performance, facility utilization and pipeline opportunities. He also discusses the growth of the SVB Fund Banking team and their many new hires, predictions for the venture capital and angel investment space for the remainder of 2020 and the corresponding impact on the innovation economy.
The funded status improved meaningfully for pension funds in April. The Milliman 100 Public Pension Funding Index, which tracks the 100 largest government-sponsored defined benefit pension plans, showed an investment return of 5.92% for the month, reducing the group’s estimated deficit by $200 billion to end the month at $1.619 trillion. The funding ratio for index constituents improved to 69.8% from 66.0% at the end of March. The group controlled total assets of $3.750 trillion at the end of April.
The true slowdown in fundraising is likely to become more evident in Q2, and reduced capital from LPs is expected to lead to a competition for new commitments and deal terms that shift to favor LPs, according to observations in the recently published Wilshire Private Markets Update.
Uncertainty around asset values and settling on a valuation process are key challenges for lenders looking to provide NAV loans in the current environment, according to comments from Debevoise & Plimpton LLP partner Ramya Tiller summarized in Private Funds CFO.