Trending topics from the FFA European Fund Finance Symposium 2024

Macfarlanes were proud to again sponsor the Annual European Fund Finance Symposium (Symposium) in London last week, now in its eighth iteration. 

Attended by over 1,000 delegates, including Adam Caines, Richard Fletcher, Chris Barrett, Ryan Moore, Kelly Wilson and Judy Chu from our finance team, the Symposium afforded opportunity for market participants to gather and trade ideas on recent developments in the fund finance market. We highlight five key themes across the various panel discussions below. 

NAV financing

NAV financings continue to be the “hot topic” in the fund finance space. They are particularly important in providing liquidity to funds for a wide variety of purposes (including the funding of final acquisitions and follow-on investments, distributions to LPs and the transition of assets to secondary funds) and are therefore viewed as an important strategy for both GPs and LPs. Of note, a number of panellists across the day discussed that communication between GPs and LPs in respect of the use of NAV financing is key to ensure that all participants are comfortable with the additional leverage that such financing injects.

Alternative credit providers

Alternative credit providers are becoming more prevalent in the fund finance market, particularly in the context of subscription line facilities – as increased commitment sizes in line with increases in AUM call established lenders to look to alternative credit providers to make up the shortfall – and NAV financings, the latter for both credit funds during the early stages of the fund cycle and for private equity funds during the mid-to-later stages of the fund cycle where they can provide more flexibility on terms relating to amortisation from distributions. As a result of more participants, there are more underlying asset classes being funded by NAV facilities (real estate and special situation funds are now being financed) but that also brings in more complexity of terms (via eligibility criteria, financial covenants and/or security over the underlying assets).

Subscription line financings

Subscription line financings continue to be a key product for GPs/managers, but are becoming increasingly complex to source given the increasing number of market participants and each of their individualist metrics (a contradiction to what was reported in our trends from the 2023 symposium - Trending topics from the FFA European Fund Finance Symposium 2023, Richard Fletcher, Clare Golding (macfarlanes.com))

Deal management

Onerous regulatory reporting requirements for ABL financings have forced fund managers to create dedicated reporting teams at significant cost to the funds. Generally, there are more financings being managed at any one time as a consequence of the rise of NAV financings, GP facilities, management company facilities and SMAs being put in place for increasingly sophisticated and demanding LPs who require bespoke structures. Spurred on by this increased deal management burden, there are increasing calls from GPs/managers for more innovation in this space to:

1. enable alternative credit providers to participate alongside the banks typically providing revolving facilities – allowing for bigger financings for the ever-growing fund sizes (particularly in light of GP consolidation) and longer tenors; 
2. avoid or mitigate continual refinance risk (with some suggestions including delayed debt tranches, umbrella facilities and a move to “hybrid” facilities to ease the progression from sub-lines to NAV debt);
3. finance the growing number of evergreen credit funds being established.  For more on our thoughts on evergreen credit funds see our recent publication Evergreen credit funds | Macfarlanes Private Capital Solutions; and 
4. include high-net-worth individuals (including via an aggregator of high-net-worth individuals) within a subscription line facility borrowing base, given their increasing importance to the fundraising market (it was noted that the increasing number of high-net-worth individual investors presents yet another learning curve for those offering subscription line facilities).

Rating of fund finance facilities

There continue to be conversations relating to the rating of fund finance facilities. Many banks are grappling with the potential impacts and interpretation of the rules to be implemented under Basel IV and, in response to the tightening up of internal risk modelling and as the number of entrants (including to facilitate investment by insurance funds through rated note feeders) continues to increase there is an expectation that ratings will become more important. Private (as opposed to public) ratings appear to be sufficient for both sides for the time being, but it is worth noting that the ratings themselves are not yet having an impact on pricing – only time will tell if this changes.

The fund finance market continues to be buoyant and there was certainly excitement as to what is next as the range of products increases as a result of further innovation in what has been, and continues to be, a flexible area of finance.  

Macfarlanes LLP has a market leading fund finance practice in London. If you would like to discuss any of the topics that were discussed at the Symposium or any other fund-related queries in more detail, please do not hesitate to get in touch.