Innovators and creative thinkers: We want you for fund finance

It goes without saying that COVID-19 is expected to be the single most important factor in how the fund finance industry fares this year. But beyond that, other issues are at the forefront of senior bankers and legal practice heads minds that will affect not only how the market will develop, but how they approach hiring.

In the first of a series of periodical updates from Brickfield on recruitment in the fund finance market in which leading industry players provide us with their insights, we spoke to: Samantha Hutchinson, partner at Cadwalader, Leon Stephenson, co-lead of the Reed Smith’s fund finance team; Jeff Maier, board member, Fund Finance Association and Fund Fanatic; and Jan Sysel, partner in the Corporate Department and the Finance Practice at Fried Frank.

Innovation is becoming the most commonly sought-after skill among financial institutions and law firms growing their fund finance teams this year. As PE funds look to diversify the range of finance vehicles that utilise, both lenders and law firms alike will be looking to hire professionals at all levels who can think creatively and work with increasingly structured solutions. According to Hutchinson at Cadwalader, increased volume in NAV-linked products and institutional capital coming into the industry will mean that “asset finance experience will be more relevant”.

Maier says he expect there will be particular demand for “creative and bespoke fund finance solutions for borrowers at the portfolio company/holding company level”, in addition to “continued evolvement of GP financing and management company products.”

There has been a significant increase in the number of alternative lenders like direct lending funds, insurance companies, pension funds and secondary fund focus on lending in the fund finance sector, according to Stephenson. Some direct lending funds in addition to providing Unitranche, he explains, are now providing NAV facilities to PE funds. “Insurance companies and pension funds are participating alongside banks in capital call and NAV facilities to credit funds which is helping banks that have limitations on their hold levels, and some secondary funds are providing preference share facilities to GPs instead of buying out LP interests directly.”

Sysel at Fried Frank meanwhile highlights management teams and employee liquidity programs, tied to incentivizing and facilitating investment in sponsored funds and related products, as an area to watch this year.

The rise of ESG as a positive force to be reckoned with in global business will continue to exert influence on the fund finance industry, with the market expecting increased demand for ESG products. Stephenson says: “We are innovating and devising ESG structures that work for funds finance products and thinking hard about which candidates in the market are most suited to carry out this type of work. Training of lawyers and awareness of the international agreements that are in place that promote ESG are key to developing this area.”

While the market has long been abuzz with the rise of NAV lending, the picture on the ground appears to be less exciting, albeit still encouraging. Maier at the FFA says that the effect of growing NAV volumes on fund finance teams has been “Less than anticipated. NAV lending is still in the early innings of becoming a refined and readily available product.”

Sysel at Fried Frank agrees. “Perhaps it is the lack of reliable market data, but the general expectation that NAV transactions would increase has been there for years, and anecdotally it seems much more of an evolution than revolution,” he says, adding: “The increase is more likely to be gradual than stratospheric.”

Hutchinson at Cadwalader and Stephenson at Reed Smith however say that NAV loans have been growing in significance for their teams. According to Hutchinson, “We don’t expect subscription facility volume to decline so an increase in NAV transaction volumes will mean additional capacity is likely to be needed.

Stephenson says: “We saw a five-fold increase in the number of NAV transactions to PE funds last year compared with previous years, and as a consequence our headcount has increased too. These deals are usually highly structured and will take up a large portion of an associates time, so important that we have sufficient numbers in the team to spread this work around.”

All are confident that the industry has the people it needs to achieve great things in 2021. Maier and Sysel both state emphatically: “The talent is definitely out there.”

Brickfield is the only international talent acquisition specialist dedicated to fund finance. If you are seeking to grow your fund finance team, or if you are looking to move to a new position in the space, Rory Smith at Brickfield Recruitment by [email protected] or by telephone on +44 7800 963 594.