The symposium was very well attended with in excess of 600 delegates registered. This is proof of both the success of the funds industry in general and also the growth of the fund finance market. It was noted that the amount of capital held by funds globally has been steadily increasing and that there has been a corresponding increase in fund finance work. Reference was made to there being over 50 lenders active in the European market pointing to its continuing strength and maturity.
With interest rates still at historic lows and default rates low across the mainstream lending sector and virtually non-existent in fund finance there is a desire by borrowers to take advantage of leverage in structures, coupled with a desire by lenders to participate in this market.
In addition to the traditional capital call/equity bridge type facilities there has also been an increase in leverage throughout fund structures with NAV facilities, hybrid facilities and portfolio company lending all featuring in the global market. The topic of GP and management facilities was discussed for the first time at the Symposium. These facilities are becoming increasingly popular and have many uses including allowing GPs to make the ever increasing level of capital commitment into their funds required by investors, smoothing cash-flow to allow regular payments to be made at a time when some fees are still to be paid, succession planning and incentive arrangements.
Macro-economic factors are benefiting the alternative fund industry as a whole and it has grown substantially since the global financial crisis. The session on the economics and numbers behind the industry pointed strongly to continued growth.
The general mood of the symposium was positive with a feeling that the fund finance market is now an established one, with lenders and borrowers both generally aware of the parameters and risks, and possessing an ability to work together to deliver transactions in a mutually beneficial manner.
While there is continuing uncertainty surrounding many political and economic factors these are yet to produce a meaningful slowdown in funds’ capital raising, fund finance or the M&A work generated by funds. The use of facilities as part of an overall capital management and deployment exercise is of growing importance. There was a general feeling that borrowers were not simply trying to use low interests rates to boost returns but were actively trying to generate value and increase efficiencies through the use of capital call facilities for the benefit and administrative ease of their investors.
One topic which was focussed on was the need for fund formation and fund finance counsel to work together at an early stage to ensure that fund documentation is “bankable”. Appleby’s ability to have our teams work closely together and often being able to provide a single point of contact across both areas means that we are well placed to do this for clients.
A potential flashpoint was identified between lenders and borrowers in terms of documentation. Where borrowers will always prefer as light a touch and as simple an approach as possible, banks (and in particular their credit and risk committees) will demand far more protection. While there was discussion around borrower driven terms sheets and borrower drafted documentation the general feeling was that we were are yet to get to a “cov-lite” or totally commoditised market in the fund finance arena. Indeed, products such as GP facilities and the interplay between these and traditional capital call facilities tend to require bespoke solutions. Our role in advising both lenders and borrowers allows us to view both sides of the market and offer pragmatic advice on how to proceed.
Fund finance is now an established, successful and growing area of the global fund industry. With fund raising and fund finance at record levels and an established market of lenders, borrowers and professionals, the industry is in excellent health and well placed to grow and improve going forward.
Appleby has a broad fund finance practice covering both lender and borrower work. Operating from our highly regarded and well-regulated locations of of Bermuda, BVI, Cayman, Guernsey, Hong Kong, Isle of Man, Jersey, Mauritius, Seychelles and Shanghai, our global presence enables us to provide comprehensive, multi- jurisdictional advice covering all globally significant fund markets.