Trending topics from the FFA European Fund Finance Symposium 2022

The return of the in person Annual European Fund Finance Symposium to London on 28 June 2022 was marked by a sense of optimism for the outlook for the sector, interest in new innovations in structuring, and reflection on the developments and trends seen since the conference was last held. Some key themes appeared across the panel discussions from market participants – here are some of the points of interest we noted at the event.

• Continuation funds financing and other types of lender support for the end stage of a fund were a trending topic. Panellists referenced continuing difficulties in satisfactorily liquidating assets in the current climate driving requests for this type of financing, and the challenges for lenders in lending to a fund with a more concentrated asset focus.
• A rise in the use of fund of one structures driven by both funds and investors such as large superannuation funds has seen a rise in confidence in lending to this type of separately managed account (SMA). This has led to discussions around required adjustments to financing documentation (such as the elevation of consequences for an exclusion event), enhanced diligence, and which boundaries should remain in terms of lender/investor contact. One panel discussed a potential area for innovation in providing solutions for “evergreen” or semi-liquid SMAs. 
• GP facilities are a predicted area of growth; while some lenders thought these would be limited to funds they had a strong relationship with, other credit providers saw a wider range of possibility here. 
• In the traditionally simpler sub line space, a homogenisation of terms was mentioned several times, driven by increasing fund sizes and the influx of new capital from alternative lenders and insurance liquidity. The comfort offered by this was deemed likely to attract further lenders.
• Discussions around NAV financing and preferred equity structures continued, with a recognition that funds with distressed portfolio companies (as a result of the pandemic or otherwise) were looking to use NAV financing for both “good” (for example, to accrete value for investors) and “bad” purposes, such as using a NAV facility to return capital to investors on a recallable basis which then upsizes the sub line. There were suggestions that a lender may wish to ensure it provides both sub line and NAV facilities in future, due to the reduced likelihood of investors honouring capital calls from a sub line lender in an enforcement scenario where a NAV facility lender has enforced over a share charge over the portfolio assets. 
• There was a lack of general consensus on what impact inflation, rate risk, stress on underlying assets and capital treatment will have on the market. Several lenders mentioned doing extra diligence on fund assets in terms of, for example, exposure to increasing energy costs or labour shortages, and there were concerns expressed about the continuing desirability of NAV facilities if interest rates start to equal hurdle rates for returns to investors. Most participants, however, anticipated the industry flexibly overcoming challenges and moving from strength to strength in the upcoming year.