Let the Games Begin July 2021 | Issue No. 136 – Women in Fund Finance: Fund Liquidity Solutions | Cadwalader, Wickersham & Taft LLP
Women in Fund Finance this week hosted “Fund Liquidity Solutions”, a virtual event that looked at some of the most innovative structuring and liquidity solutions used in the private markets. The panel brought together industry experts who are at the forefront of structuring these solutions and discussed the latest trends in capital raising and how structured liquidity solutions are used by asset managers. private markets to manage their portfolios.
François Aguerre, partner and head of origination at Coller Capital, shared his point of view as one of the most successful secondary managers in the market using some of these technologies. Richard Golaszewski, CFA, Managing Director of 17Capital, presented the perspective from the lender side on how GPs creatively think about the use of debt and preferential liquidity. Matt Kerfoot, Americas Head of Fundraising and Fund Investments at UBS Securities LLC, gave an excellent overview of his current role and shared examples of his extensive experience as a business lawyer working on complex financial transactions. and structured products as a partner at Dechert LLP. Matt Ruggiero, Managing Director of the Strategic Advisory Group at PJT Partners, completed the panel with the perspective of his investment banking background, which included a focus on structured finance. The panel was moderated by our own Samantha Hutchinson, partner of the Cadwalader fundraising group.
The session focused on two key themes: how managers use structured finance solutions as part of their fundraising programs to raise cash and where the drivers are coming from; and how NAV and pref products are used by general practitioners to unlock value in portfolios. Some observations coming out of the panel:
- Some of the more interesting developments in capital raising and valuation involve the use of securitization structures and techniques to leverage the capital of insurance companies as well as the establishment of structures that allow managers and investors to enhance their portfolios.
- These structures are evolving rapidly and are part of an exciting development in the fund financing market. Those who have been around long enough will remember when sublines were a “edgy” thing to use. This is precisely where these agreements are found and the market is growing.
- Some sponsors are requesting these transactions because they have sponsors who have expressed an interest in investing in a rated securitized vehicle. Sometimes these transactions are motivated by a reverse investigation from LPs to GPs. There is also an element of momentum; the more the GPs carry out these transactions and the more the LPs have a good experience, the more these transactions are numerous. There is also an element of GPs exploring these structures to get distributions to their LPs faster.
- On the investor side, the appetite for this paper is growing. The buyer base was nascent just three or four years ago. Now, investors who buy paper in securitizations in traditional markets are interested in investing in the notes of these transactions. Investors include insurance companies, large institutional fixed income securities and structured credit securities. All of this presents an opportunity for general practitioners to increase their assets under management. The IR groups at the sponsors do a lot of education on these structures and use them as a tool to raise capital. Rather than just having a stock offering, they can also offer potential investors an additional option in the form of a structured note. This document is an exciting investment opportunity for yield-hungry investors. Investors see net asset value financing and other structured solutions as some of the most attractive opportunities for risk-adjusted returns. NAV finance is the next sub-asset class and investors see it as a great place to invest their capital.
The panel ended with predictions for the future. Each panelist was excited about the creative thinking and evolving structures they see in the market. It appears that with more liquidity opportunities, funds can consider what best suits their needs based on the specifics of their investor base and investments. The panel made the following predictions:
- More new ideas come into the system with more liquidity as the market continues to grow. An opportunity for “positive chaos” as new structures arrive on the market.
- The potential for opportunity in the market, as funds leverage a combination of net asset value lending, preferred equity, and fund financing to best serve the larger fund strategy. As investors see this as a successful strategy, they will look for agile and opportunistic managers when it comes to using different credit strategies.
- The ability to rate PE portfolios will open up a lot of new opportunities which we will talk about in a few years. These products are relatively simple, but creative sponsors and investors can use these products in different and unexpected ways.
- As more and more sponsors, investors and lenders think creatively about structuring and liquidity solutions, this continues to be an exciting time to be a part of the fund finance market.