Funds Finance Outlook 2: March 2024

An overdue trip to Miami – the FFA Global Symposium

After a self-imposed exile from the US-based FFA events, I was delighted to travel to Miami for this year's FFA Global Symposium and find out what I have been missing over the last few years. Colleagues' feedback had suggested that since my last New York conference attendances, the event has grown and flourished in the Miami sun. They weren't wrong! With nearly 2,000 delegates and up to 3 streams of sessions at any one time over the substantive 4 days of the conference, the FFA never disappoints!

The noticeable stand out moments from this event?

1. The energy and buzz – and not just from the spring breakers!! From the conference rooms, the hotel lobby (and bar), the pool bars, lawn drinks, sunset cocktails, Soho House, Watr, Ocean Social (Ashurst drinks!), Nobu hotel - I think you get the gist - at all times the energy was prevalent and infectious. Positivity abounded with few concerns openly voiced (note capital constraints below!).

“My main takeaway from this year’s FFA conference in Miami was the speed at which the Fund Finance market is growing, with the number of delegates significantly up on last year (and last year on the year before that) – a very promising sign for the future.

In terms of discussion and content, NAV remains the topic on everyone’s lips, with a lot of anecdotal observations from lenders and borrowers on current drivers in the market, specifically linked to sensitivities around purpose.”

Jamie Mehmood, Deloitte

2. NAV! The one major change since my last US conference across the pond was the arrival of the 'NAV set'! Special Sits and leveraged lawyers were in attendance by their masses – or at least their natural … enthusiasm .. ensured that they seemed to be the dominant attendees. Are capital calls in danger of being the poor cousin to the newest entrant? Hardly, but you could not ignore the volume of discussions that focussed on the growth of NAV lines and new structures to different asset classes and fund appetites.

"Great to see the obvious evolution of the NAV market with some substantive progress on facilities being structured, papered and drawn. Clearly Investor concerns need to be understood and allayed, but the demand exists and is likely to grow, with the financial benefits reflected in fund performance."

Doug Murning, Ashurst

3. Capital Requirements Directive IV and Basel – not everyone's favourite topic, but the ongoing changes to capital allocation is making even the most thoughtful lenders reflect upon future pricing and balance sheet issues, which inherently leads to…
4. Distribution. We even had a Securitisation session, making me wonder if we'd found ourselves early in Barcelona for a while (Global ABS). This area really did pique my interest... At Ashurst we have managed to structure a few Securitisation-like deals and have a very busy balance sheet management team that is assisting on a number of projects in this space; I sense the team is likely to be getting busier…. 

One area I had a number of conversations on was GP financings - a great piece here from our Associate, Kishen Vora:

Key pitfalls in GP financings

The Ashurst team saw an uptick in GP/co-invest facilities through 2023, so as good an opportunity as any to highlight some key pitfalls in structuring these facilities:

Purpose

Understand the purpose. If the facility is being used to fund a co-investment commitment which needs to be put in at a specific time hardwired in the limited partnership agreement, being aware of this and the funding timelines is important (and avoid last minute rushes).

Priority Profit Share Security is taken over the priority profit share (PPS) payable to the general partner:

• how and when this is paid, and are there any requirements to offset PPS against any fees/expenses owed by the limited partner?
• is all or portion of the PPS on-paid to any other fund entity, for example, the manager or investment advisor – a belts and braces approach will be to take security from each entity that receives the PPS and the account into which it is paid;
• are there any 'kick-out' fees payable on removal of the general partner? Does the security cover these fees?

Fund Documents and Due Diligence

It is useful to understand from the borrower whether they will be amending their fund documents close to closing. The limited partnership agreement may be amended and restated or even new documents entered into at final close (which may be the time when the general partner is required to fund their co-investment!).

With increasing frequency, we are seeing large investors with side letters providing for a discount in the PPS payable – important to have this fleshed out early in any financial model.

Kishen Vora
Associate, London
Kishen.Vora@ashurst.com
+44 20 7859 1312
+44 7810 242 516