Summary
As the private markets industry matures, fund finance is providing critical capital for GPs.
Fund finance is evolving from an administrative tool into a strategic source of liquidity that supports long-term GP commercial objectives.
As exit slowdowns delay distributions and slow fundraising, fund finance is providing a crucial source of capital to support portfolio companies between fundraisings and in a challenging exit market.
In an environment where liquidity is constrained, GP financing is facilitating generational change, enabling retiring partners to cash out and helping junior partners to meet GP commitments.
New capital is flowing into the fund finance market to meet demand, but lender track record, diverse sources of liquidity and scale are more important than ever.
Introduction
More lenders and more choice, but who can deliver?
Fund finance has matured into a fully fledged institutional asset class, with its appeal validated by growing capital inflows.
The subscription line market (lending secured against unfunded limited partner (LP) capital commitments) is now worth more than US$1 trillion, while the net asset value (NAV) loan market is expected to more than triple in size from current levels by 2030.
As the fund finance market has grown and become more established, managers who initially entered the market via familiar subscription line facilities have become more comfortable using complex NAV loans and general partner (GP) financing.
With GP demand for financing at fund and management company level increasing, the number of new market entrants in the space has also increased, driving greater competition and innovation. Subscription line facilities can be structured as term loans rather than revolving credit facilities (RCFs), while hybrid facilities combine unfunded investor commitments and portfolio NAV as collateral, adapting as a fund matures.
More liquidity and flexibility, however, do not equate to better provision. Jonathan Harvey, Head of Fund Solutions Relationship Management, and Helen Griffiths, Head of Structuring, explain why, as the market grows, the challenge for GPs is to look beyond attractive headline pricing and facility size and select providers on long-term staying power and deliverability, as well as the capacity to access diverse pools of liquidity and provide reliable funding across market cycles.
Theme 1
Why traditional fund finance product silos are no longer sufficient to address GP requirements
GP financing requirements are rapidly outpacing traditional product silos, as liquidity pressures build simultaneously at fund, portfolio and management-company level.
Financing pressures can arise across the platform at the same time.
Longer fundraising timelines
How can an acquisition be financed before the next fund closes?
Extended holding periods
How can portfolio funding continue when exits take longer?
Succession and GP commitments
How can financing accommodate founding partners and the next generation?
Hybrid capital is increasingly viable as a tool to support GPs through extended fundraising timelines as NAV loan and subscription line pricing and risk appetite converge.
Fund finance is delivering essential liquidity for smoothing out prolonged exit runways through the provision of more sophisticated portfolio financing facilities.
“In an exit-constrained environment, fund finance has enabled GPs to continue funding portfolio company growth through extended hold periods and support capital formation for assets moved into CVs.”
- Helen Griffiths, Head of Structuring
Distributions as a percentage of NAV are running well below average
PE firms are becoming more complex and expensive to run, with leadership teams tasked with managing succession processes and helping junior team members to finance their first fund commitments.
Discuss your financing requirements with Helen
Helen Griffiths
Head of Structuring
Theme 2
How scale in fund finance changes the game
GPs require larger financing facilities and are pivoting to lenders that can draw on diverse pools of capital across multiple cycles to provide reliable liquidity at scale.
Discuss lender capability with Jonathan
Jonathan Harvey
Head of Fund Solutions Relationship Management
Theme 3
Trust predicts execution in a crowded market
Fund finance is not a one-off, purely transactional arrangement, at least not in the European market. As GPs grow and raise new funds, their capital requirements change. High-quality lenders support GPs through these transition points.
Turn an insight into a conversation
What does your next stage require?
Discuss your fund and management-company financing requirements with the Fund Solutions team.
Jonathan Harvey
Head of Fund Solutions Relationship Management
Jonathan Harvey
Head of Fund Solutions Relationship Management
Jonathan is one of the original members of the Fund Solution team and has bene involved directly in its strategic development since inception. During this time, Jonathan has been responsible for setting up the European Fund Solution business and developing the Capital Call product. Jonathan currently heads up the relationship management function within the Fund Solution’s team, with responsibility for providing the full Fund Solutions product set to the existing client base.
Jonathan has been with Investec since 2007 and has experience working in the Structured Property Finance, Specialised Lending and the Fund Solutions business.
Helen Griffiths
Head of Structuring
Helen has over 18 years of experience in the fund finance lending market and adds significant experience across the full spectrum of debt solutions offered to private capital funds and fund managers. Her role within the Bank focuses on structuring solutions across subscription finance, NAV and pref, GP/co-Investment and hybrid. She is also responsible for building and originating relationships with existing clients and new to Bank clients. Helen also sits on the Executive Committee of the FFA for EMEA and is the Chairwoman of the FFA Advisory Council for EMEA. Within the Bank, Helen leads the BID (belonging, inclusion and diversity) initiative within Fund Solutions and is part of the leadership team that facilitates One Investec College – a networking and education programme that develops cross selling within difference business units.
Jonathan Harvey
Head of Fund Solutions Relationship Management
Jonathan Harvey
Head of Fund Solutions Relationship Management
Jonathan is one of the original members of the Fund Solution team and has bene involved directly in its strategic development since inception. During this time, Jonathan has been responsible for setting up the European Fund Solution business and developing the Capital Call product. Jonathan currently heads up the relationship management function within the Fund Solution’s team, with responsibility for providing the full Fund Solutions product set to the existing client base.
Jonathan has been with Investec since 2007 and has experience working in the Structured Property Finance, Specialised Lending and the Fund Solutions business.
Helen Griffiths
Head of Structuring
Helen has over 18 years of experience in the fund finance lending market and adds significant experience across the full spectrum of debt solutions offered to private capital funds and fund managers. Her role within the Bank focuses on structuring solutions across subscription finance, NAV and pref, GP/co-Investment and hybrid. She is also responsible for building and originating relationships with existing clients and new to Bank clients. Helen also sits on the Executive Committee of the FFA for EMEA and is the Chairwoman of the FFA Advisory Council for EMEA. Within the Bank, Helen leads the BID (belonging, inclusion and diversity) initiative within Fund Solutions and is part of the leadership team that facilitates One Investec College – a networking and education programme that develops cross selling within difference business units.
Poll
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About Investec
Investec Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 172330. Registered in England and Wales (No. 489604). Registered office at 30 Gresham Street, London EC2V 7QP.
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