Fund Finance Insights

Banking Brief: Fund
Finance trending positive

6 minute read time

The latest RBS International webinar considered how fund finance has evolved over the last five years, which trends in the market have been accelerated by Covid and looked ahead to what could be an encouraging year.

With the prospect of a return to something like business as usual growing ever closer it seemed like an apposite time to look back on some of the impacts, short and long term, that Covid has had on the fund finance industry. The recent RBS International Banking Brief webinar did precisely that, bringing together three eminent players in the sector to discuss some core questions facing those concerned with fund financing.

Hosted by Seán O’Callaghan, Head of Institutional Banking at RBS International in Jersey, the session kicked off with a look back over the last few years.

A holistic approach

For Neil Syers, CFO at Hayfin, having launched the asset manager back in the aftermath of the global financial crisis of 2008, and establishing it as a leading player in the alternatives space, the focus in recent years has been on relationship building with the numerous banks that have entered the Hayfin orbit.

“We’re now seeing the fund finance industry not just provide LP-backed facilities, but we almost see the kind of prime brokers of the pre-financial crisis era, where [when] we pick up the phone to the bank now, we could be asking for anything,” he explained, pointing to services such as interest rate hedging or FX (foreign exchange), LP-backed financing, CLO (collateralised loan obligation) warehouses or M&A advice.

“We really do look for that more relationship-style, holistic support from the banks now. And that will continue as we grow globally, so we’re excited about figuring out the next phase of fund financing.”

That evolution of the banks’ role was a key theme of the discussion, as finance providers now move on from a ‘one product/transactional’ offering to focusing on supporting their clients over the lifespan of the fund cycle.

Certainly, finding the right lender to deliver on a precise set of needs has been a central part of the success of NREP, whose Director, Head of Financing Sanna Weiss, agreed that the manager was on the same path as Hayfin in trying to diversify its group of lenders and partners, not only on the fund finance side but across all of their structures and at the propco level.

“So we’ve really benefited from new lenders and new structures coming into the market and one of the benefits of that evolution has been to help us raise our first subscription facility for an open-ended fund with RBS International at the beginning of this year.”

“We really do look for that more relationship-style, holistic support from the banks now. And that will continue as we grow globally, so we’re excited about figuring out the next phase of fund financing”

Neil Syers, CFO, Hayfin

That success chimed with the sentiment expressed by Robin Smith, Partner at Jersey law firm Carey Olsen, who reported that 2020 was a record year of growth in the territory. “We saw the alternatives industry up over £500bn in terms of assets under management. And we saw a definite rise in FMs looking to use Jersey to access European markets, with a strong inflow of US investors coming in.”

And while there were some moves towards Luxembourg and Ireland, that trend was matched, he explained, by the continued strength of the Jersey feeder fund for the US investor. “And that is going from strength to strength, which is encouraging.”

Strong foundations

Syers at Hayfin was also keen to point out that much of the disruption of the past 12 months had in fact demonstrated the underlying strength of the existing fund-financing structures and processes across both banks and asset managers. It’s not something to take for granted given the unprecedented impact of the pandemic.

“From our perspective we were trying to get financing facilities done when the world turned upside down just over 12 months ago, and it felt a bit like 2008 all over again,” Syers said. “There was a lot of nervousness and uncertainty – not just at managers like ourselves in terms of what was happening with our underlying portfolio, but also at banks worrying about their own exposures to underlying pools of assets, what the value of those assets was, never mind pricing new facilities.”

But the centre held, and the focus for most of the industry will inevitably return to future funding strategies, Syers said. “Credit appetite at the banks is as buoyant as ever and we’ve seen that many of our facilities have been really hotly contested, and it’s been very competitive, so a lot of the banks have come to the fore now and expressed interest in providing financing solutions to us.”

Indeed, Syers reported that, if anything, pricing is tighter than ever. “People have become creative in terms of how they’re structuring things, whether using securitisation or vanilla LP-backed facilities, and we’ve certainly seen margins being squeezed.

“So in short, things are powering ahead, and it seems just as competitive as ever; and now going forward this is going to be driven by investor sentiment and what investors want.”

The customer is always right

For Weiss at NREP, understanding those divergent investor needs regarding the use of LP backed financing will be a crucial element of the asset manager’s role in the coming 12 months.

“There seems to be people in different camps on what they want,” she reflected. “And over time that will probably segregate them into different pockets as and when funds are large enough to cater to different structures and facilities within the funds.

“So I think it’s a natural evolution, with more lenders and more depth in the market and the continued evolution of structures, some of which are quite creative in terms of what they can do and how they can be used. It’s only natural that that evolution is then followed by more scrutiny from the investor side.” 

By Christian Doherty