Walkers Offshore Fund Finance Update – Asia, Europe & US Market

The global fund finance market remains resilient, with a positive outlook particularly in the credit and distressed opportunities market. Since the real impact of Covid-19 started to become clear in March, banks have been supportive and willing to lend to deal with any liquidity issues, and there have been no widely known or public defaults by limited partners or material fund distress.

We see new funds actively looking for financing, though, generally speaking, deals are taking longer to close and there has been an impact on financing terms including in respect of economics, tenure and covenants. On the lending side, borrower relationships are key with new names entering the creditor space, alongside an increase in alternative lender activity.

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Asia - Key Trends & Themes

Regional managers with a strong track record are raising significantly larger funds and as such borrowing requirements are much larger, meaning more syndicated and club deals, larger bank groups and more banks entering the market. We are seeing a rise in ESG linked funds and opportunistic funds (either new or an upsize of an existing fund), sometimes with only one investor (where funds are looking for exposure to a particular private credit opportunity).

Trends include:

• Although fundraising is a key concern for managers, fund raising has been relatively resilient – Asian managers appear to be finding it easier to raise funds than European managers, which is supported by data from the likes of PEI
• There is, however, consolidation.  Managers with strong track records are finding it easier to raise funds than new managers. This is arguably a result of a flight to quality, but more likely due to difficulties for investors and allocators completing CDD on new managers (due to Covid and travel restrictions) – re-up capital is easier to obtain
• Walkers Asia Private Equity Survey 2020 suggested an optimistic view for 2021 – around 80% of respondents had a generally optimistic with only 3% pessimistic
• Not such a noticeable trend in hybrid and NAV facilities as reported in Europe and the US, though lots of discussions on the subject
• Management lines continue to be seen, as well as an increased use of uncommitted facilities
• Increases in pricing (following the global trend) but to note from a traditionally lower starting point for subscription line facilities
• Fees remain the most heavily negotiated terms when raising new funds

Europe - Key Trends & Themes

The well-documented trend of non-bank lender activity continues, with lots of interest around NAV products (defensive and offensive), as well as management liquidity solutions such as preferred equity. Ireland saw a particular rise in waivers and amendments initially, and currently enjoying a notable rise in new money transactions.

Trends include:

• An increase in opportunistic funds being raised in Europe in order to take advantage of current market conditions consequently we are seeing an uptick in private credit, credit opportunity / distressed investment and loan origination funds
• Strong relationship lending across Europe, therefore some uncertainty around syndication seen initially, however markets have since opened up
• In Ireland, due to the Anti-Tax Avoidance Directive and the interest limitation rules (expected to be implemented January 2022) we are seeing some managers accelerating the launch of products and migrating to Ireland, some have moved existing strategies into an ICAV or regulated structure
• Generally anticipating continued increase in activity for Q4 and Q1 2021 as cash deployed and opportunities arise (including when government support schemes are withdrawn), alongside more bespoke financing solutions on offer to support funds and their portfolios as needed

The US - Key Trends & Themes

There is still a good deal of activity in the market, however some deals are taking a little longer to reach completion than might normally be expected and it is not unusual for recent transactions to go quiet for a couple of months before pushing on to closing. Nevertheless, we are expecting a busy final quarter.

Trends include:

• Our fund formation teams remain very active with new fund closings. The remediation registration process for Private Funds and Mutual Funds was completed in August 2020 and was reflective of a great effort by all relevant Cayman industry participants in order to reach this milestone
• We are still seeing a full range of deals, including a steady flow of new money subscription financings for larger more established private equity funds and numerous amendments and joinders to existing facilities for the purposes of (i) extending the maturity, (ii) incorporating Private Funds Law covenants and / or (iii) incorporating benchmark replacement language
• Private Funds Law related conditions and covenants have become a key Cayman law focal point for many of the major lenders that we work with in the subscription financing market, and we are still seeing a variety of different approaches being adopted, by both lenders and funds, to address compliance
• We have seen a number of new lender entrants into the subscription financing market over the last 12 months and increased activity levels from certain existing participants.  We are seeing non-lender activity in the NAV facility space.  Debt commitment backed transactions have also been popping up with increasing frequency over the last 12 months
• We continue to see and act on a number of financings where the management entity / general partner is incurring leverage (rather than the underlying fund(s)) and securing its rights to fees and / or distributions from the fund

Rob JacksonManaging PartnerT +1 345 914 4281rob.jackson@walkersglobal.com
Hugh AndersonPartnerT +1 345 814 4518hugh.anderson@walkersglobal.com
David CollinsPartnerT +1 345 814 4503 david.collins@walkersglobal.com
Justin HartPartnerT +1 345 814 4565justin.hart@walkersglobal.com

Zoë HallamGroup Partner*T +44 (0)1481 748 920zoe.hallam@walkersglobal.com

Paul AhernePartnerT +65 6595 4496 paul.aherne@walkersglobal.com
James GadenPartnerT +852 2596 3433james.gaden@walkersglobal.com

Ian McNameePartnerT +353 1 470 6643ian.mcnamee@walkersglobal.com
Andrew TraynorPartnerT +353 1 470 6632andrew.traynor@walkersglobal.com

Alexandra CornerPartnerT +44 (0) 1534 700 778alexandra.corner@walkersglobal.com
Julia KeppePartner, Walkers (CI) LPT +44 (0) 1534 700 728julia.keppe@walkersglobal.com

Jack BoldarinManaging PartnerT +44 (0)20 7220 4995jack.boldarin@walkersglobal.com
Neil McDonaldPartnerT +44 (0)20 7220 4990neil.mcdonald@walkersglobal.com
Patrick OrmondPartnerT +44 (0)20 7220 4983patrick.ormond@walkersglobal.com

Paul AhernePartnerT +65 6595 4496 paul.aherne@walkersglobal.com
Richard SiddlePartnerT +65 6595 4678richard.siddle@walkersglobal.com
Shirleen TanPartnerT +65 6603 1665 shirleen.tan@walkersglobal.com

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