Key takeaways from the 7th European Fund Finance Symposium
In late June, our Banking and Finance teams from the United Kingdom and Luxembourg attended the 7th Annual European Fund Finance Symposium in London.
The Fund Finance Association's annual symposiums bring together investors, fund managers, bankers and lawyers for education and networking within the fund finance market.
We are delighted to share with you our teams' key takeaways from the event:
- With fundraising on both sides of the Atlantic at its slowest in more than 20 years (according to data from Preqin) due to the macro-economic environment, funds are more likely to hold their investments for longer and need access to liquidity. As a result, the fund finance market continues to evolve and to accelerate from simple bridging facilities to increasingly sophisticated transactions such as NAV facilities, GP facilities, Collateralised Fund Obligations, rated notes/loans.
- Due to balance sheet constraints, lenders are more selective and there is a much greater focus on large top tier managers that have strong track records, managing mature and diversified portfolios (to avoid concentration), but also where there might be cross selling opportunities.
- Given the recent bank failures there has been a focus on both the liquidity of a fund's incumbent lender but also diversification of a fund’s lender(s), depositary and account bank pool. There has also been a focus on the and defaulting lender provisions in facility agreements (which remain untested in Continental Europe). However, this has presented an opportunity for non-bank lenders to join the space.
- The number of non-bank lenders in the fund finance space is growing significantly as they step in to fill the supply issues and and balance sheet constraints banks are experiencing. The anticipation is this will continue to be a key trend, especially as more deals are rated.
- Significant risk transfers, credit ratings and securitisation solutions are a key focus for lenders in order to optimise their balance sheets and free up capacity. Hedging has also become the norm. Such arrangements allow a bank to reduce its regulatory capital requirements via risk sharing arrangements (such as funded participations, first loss tranches etc) with capital market investors (such as insurance companies).
A more detailed summary of some of the above key trends from this very interesting event will follow.