Funds that are permitted to by their establishment documents can make use of finance in order to enhance returns for their investors and managers and also to manage cash flow. Fund financing products have become more complex over recent years and involve increasingly sophisticated solutions for funds and, indirectly, their investors.

The typical fund finance facility is the “capital call” facility. This allows a fund to borrow from a lender based on the commitments which investors have made to the fund.  Security is granted over these “call rights”.  The bank or other lender will provide credit based on the amount of uncalled commitments available.  The fund manager will typically use these facilities to complete a deal (or series of deals) and then request that investors pay their capital commitments to repay the finance.  The main advantage to investors is that they do not need to make capital calls in a compressed timeframe to hit a deal closing target and they may also only be presented with a single draw down request at the end of a certain period (for example each quarter) rather than receiving multiple requests.  Lenders are attracted to these facilities as they are generally low risk.  Providing the fund documentation regarding capital calls is robust, there is appropriate security in place and investors are credit worthy the default risk should be minimal.

In addition to capital call facilities products such as net asset value (NAV) facilities (effectively a facility lent against the value of a fund’s portfolio) and hybrid facilities (a mixture of capital call and NAV) have become increasingly popular. There has even been an increase in unsecured funding which is subordinated to a secured lender – this first became prevalent in the US so the term “second lien” is often used as this tends to be the US description of this sort of debt.  Clearly this form of borrowing is comparatively expensive given the increased risk to the lender so will generally only be used for very short term lending where there is a commercial need for a facility of this kind.

The increasing demand for fund finance combined with the increased number of funds in the market has led to an expansion in the providers of this product. A few years ago there were a handful of global banks who dominated this space.  Now the number of providers has increased significantly with debt funds and specialist providers being especially active in the small and medium fund market.

Jersey has the enviable position of having a strong funds and banking/finance centre so is ideally placed as a location for both lenders and borrowers in the funds finance arena. It is also worth mentioning that there are a number of financial institutions, including some specialist debt funds, based in Jersey who provide these products.  With interest rates still at historically low levels and an increased awareness and provision of finance available to funds it is likely that fund finance will grow globally and locally.

Key Contacts

James Gaudin

Managing Partner: Jersey

T +44 (0)1534 818 337
E Email James

Andrew Weaver

Partner: Jersey

T +44 (0)1534 818 230
E Email Andrew

Share
Twitter LinkedIn Email Save as PDF
More Publications
5 Jan 2022 |

Trustee Knowledge Series: Advanced Paper Six: Overview of protectors 'ad serviendum ac protegendum”

Appleby Private Client & Trust Partner David Dorgan has authored and distributed a series of Tru...

25 Nov 2021 |

Regulatory Approach to ESG across the Crown Dependencies

New requirements may require investment products to display a label reflecting their sustainability ...

24 Nov 2021 |

'Jersey's Relationship with India: Political, Commercial and Cultural Connections'

Jersey First for Finance has recently published a guide entitled ‘Jersey’s relationship with Ind...

18 Nov 2021 |

Trustee Knowledge Series: Advanced Paper Five - Trusts with Reserved Powers

Appleby Private Client & Trust Partner David Dorgan has authored and distributed a series of Tru...

11 Oct 2021 |

Trustee Knowledge Series: Advanced Paper Four: The proper law and place of administration of trusts and courts with exclusive jurisdiction

Over the next twelve months, Appleby Private Client & Trust Partner David Dorgan will author and...

7 Oct 2021 |

Jersey: an evolving global platform: Jersey First for Finance 2021

This article, taken from Jersey ~ First for Finance ‒ Celebrating 60 Years of Finance 1961-2021 wa...

4 Oct 2021 |

Navigating the Jersey M&A landscape (2 of 3)

This is the second of a series of three articles, each dealing with topics to be considered when buy...

Contributors: Andrew Weaver
22 Sep 2021 |

Minute Writing Training

Trustees are under a statutory duty to keep accurate records of their trusteeship, but what does tha...

15 Sep 2021 |

Navigating the Jersey M&A landscape

This is the first of a series of three articles, each dealing with topics to be considered when buyi...

Contributors: Andrew Weaver
2 Sep 2021 |

Duties of Trustees

The relationship of trustees to beneficiaries is viewed as fiduciary, meaning there are certain equi...