At the 7th Annual European Fund Finance Symposium this week, our co-head of fund finance, Richard Fletcher, chaired a panel on non-bank lenders and what is needed for more growth in this area. A lively conversation on challenges and progress was had by the panellists: Shelley Morrison from abdrn, Stephen Quinn from 17 Capital, Victoria Stewart from Partners Group, Slade Spalding from NLC, and Andrew Husdan from Clifford Chance.
It was agreed that non-bank lenders are far from a homogenous group, and as such will have their own unique interests and issues, but some common themes emerged.
- In the sub line space, which is traditionally dominated by revolving credit facility products provided by banks due to their operational demands, non-bank lenders have nonetheless been able to bring innovative ideas and solutions.
- Non-bank lenders have been much more instrumental in developing NAV facilities, secured against the value of the portfolio assets in a fund. Banks do participate here also, but the higher cost of origination and the complex and nuanced structuring required can favour non-bank lenders such as credit funds and other alternative capital providers.
- Investor diversification goals have been drawing non-bank lenders into fund finance as the credit risk has been perceived to be relatively stable throughout the global financial crisis and the pandemic.
- One of the main challenges for new lenders such as credit funds moving into this type of lending is educating their own investors on the product. This is where organisations such as the Fund Finance Association can play a valuable role too. Panellists discussed whether there was a need for simplification and standardisation in fund finance, but also acknowledged that, in the NAV space particularly, lenders do benefit from a “complexity premium”.
Hints of an interesting future landscape emerged with mentions of the challenges of non-bank lender clubs and funds continuing to look to diversify their financing partners in the context of further possible defaulting lender situations arising. Many thanks to all the panellists for their engaging contributions.