Fund Finance Symposium 2024: Market resilience and expansion

The Ropes & Gray fund finance team recently attended the Fund Finance Association’s 13th Annual Global Fund Finance Symposium in Miami, where market participants gathered to discuss the latest developments in fund finance and to consider the outlook for the industry in 2024. Below are our key takeaways from the conference.

Resilience of the subscription facilities market

After a turbulent year in the wake of the regional banking crisis that started in March 2023, the overall sentiment is that the subscription facility market is healthy and well, with many new lenders coming into the market to fill the vacant space. The imbalance of supply and demand earlier in the year has largely abated as new entrants have come into the market. Panel participants highlighted four trends for the future:

• Many well-established industry players have moved to new banks which are expected to expand their presence in the subscription facility market.  
• With the higher regulatory capital requirements faced by banks, there is a focus on rightsizing facilities to match borrower’s expected needs instead of maximizing borrowing capacity based on the size of investor commitments. 
• To limit balance sheet allocation, banks are also seeking to provide uncommitted fund lines or greater flexibility to syndicate facilities.  
• Having a rating for the facility is one way in which lenders are looking to bring in non-bank participants, such as insurance companies, to alleviate the supply constraints in the market. 

Continued development of net asset value facilities

NAV lending was again a big topic at this conference with many panels highlighting the expansion of the market, new entrants and different use cases for these facilities, including refinancing portfolio companies, completing additional investments and/or distributing capital to investors without having to dispose of assets at a discount. 

One point to note is that variations on net asset value facilities are being used across strategies, including by private equity buyout, secondaries and credit. As the NAV market matures, investors have taken notice and voiced some concerns. Among them are the lack of transparency, certain use cases and increased overall leverage on the portfolio.

While NAV facilities when properly used can be a great tool in an asset manager’s portfolio, the next step in the evolution of the market is buy-in from limited partners through communication between managers and investors and overall education on the topic similar to the process when the use of subscription facilities initially took off. 

Overall expansion of the fund finance market

Those following the fund finance market over the years have seen its continuing expansion and this year’s conference was no different. The heavy presence of an increasing number of non-bank lenders, insurance companies and asset managers is evidence that the fund finance market continues to grow both in terms of participants and products, which now include structured products, collateralized fund obligations, back-leverage and rated note feeders alongside traditional subscription facilities and asset-based facilities. 

Thank you to associate Tyler Ackerson for his help in preparing this post.

If you would like to discuss any of the topics mentioned above in more detail, please contact us.

Subscribe to Ropes & Gray Viewpoints by topic here.