US Market Review
The fund finance market has continued to evolve over the last 12 months, with existing trends persisting and, in some cases, accelerating. These trends and the market's response to them are indicative of a resilient and increasingly dynamic fund finance ecosystem, and the continued growth and innovation in the market is a cause for genuine optimism.
Subscription Lines
The subscription line market continues to be shaped by constraints on banks' lending capacity, higher interest rates, and a more cautious approach to utilisation by fund managers. Despite these challenges, deal flow was consistent, albeit with extended timelines, that align with the general fundraising climate. On a positive note, higher interest rates do not appear to be dampening overall demand for subscription lines. Extensions of existing deals are common and often accompanied by an increase in margin. The use of hybrid facilities, which are proving particularly useful for continuation funds, but there is currently no indication of a significant uptake in the wider market.
On the supply side, we are still seeing the same big "traditional bank" players across our global practice. While these banks continue to dominate, we are also seeing new bank entrants take advantage of capacity constraints among more established lenders, targeting fund managers who may otherwise be squeezed out of the market.
We have advised on many structured finance solutions that address capacity constraints among lenders, and it will be interesting to see how these can be applied to the fund finance market and the effect this will have on deal flow.
The use of bankruptcy remote structures has emerged as another key trend with a marked increase over the last 12 months.
NAV Facilities and Non-Bank Lenders
Net Asset Value ("NAV") facilities remain a hot topic. Structure and terms vary considerably and we continue to see a high degree of customisation and innovation. Despite some negative coverage in the media, the strategic importance of NAV facilities for fund managers is clear and we expect their importance to continue to grow as the market matures.
Non-bank lenders continue to gain traction, leveraging their ability and deep sector expertise to accommodate niche and complex transaction structures. They are proving to be particularly well-suited to NAV facilities and all indicators suggest that non-bank lenders will become increasingly important in the global fund finance market.
Bankruptcy Remote Structures
The use of bankruptcy remote structures has emerged as another key trend with a marked increase over the last 12 months. The Cayman Islands has shown itself to be particularly well-suited to these transactions, able to draw on a wealth of experience and technology from other segments of the market, most notably securitisations and asset finance. Through our market-leading service offering, encompassing both legal and fiduciary services, we continue to be at the forefront of this exciting trend.
Outlook for Q2 2024 and Beyond
The global fund finance market has proven itself to be resilient in the face of challenging economic headwinds. The market continues to grow and we are seeing a maturing and increasingly diverse and adaptable ecosystem. Having seemingly weathered the impact of higher rates, the market can look forward to the possibility of rate cuts which could stimulate M&A activity, facilitate exits and enhance investor liquidity. Such a shift may serve to improve the fundraising landscape and, in turn, may increase the demand for fund finance products and spur further innovation. Although constraints on lending capacity could temper growth to some extent, they could also prompt a renewed emphasis on finding creative solutions to capacity constraints, as well as expanding opportunities for new market entrants.
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