Nothing to See Here: LP Defaults are Fake News

April 15, 2020

Mike Mascia, co-founder of the Fund Finance Association (FFA) and head of the fund finance practice at Cadwalader, notes that, contrary to reports, there have been no investor defaults and lenders are extending credit facilities to support both LPs and GPs.

An excerpt from “Nothing to See Here: LP Defaults are Fake News,” The Drawdown, April 15, 2020:

Mike Mascia, co-founder of the FFA and head of the fund finance practice at Cadwalader, told The Drawdown, “There are some examples of things on the margins, and then they get written about and it feels like a trend. The FFA tried to distinguish what’s happening a little bit with what’s happening market-wide. For example, while there are certainly a handful of funds that have drawn on their sub lines just to have cash on their balance sheet, it’s important to understand that this is not a widespread activity.” According to Mascia, looking at the behaviour of bank portfolios across the spectrum, “Everything has been behaving largely normally.”

. . .

In response to reports of increased call activity, Mascia is unsure why this is being raised. “We had one of the largest lenders in the fund finance space look at their data, and they found that capital calls at the end of the first quarter were half that of the end of the year. It’s hard to square that, maybe concern levels are high and so it feels as though there have been more calls. Or maybe this lender banks primarily the bulge bracket sponsors and increased call activity is happening in the middle market, we just are not sure.”

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