Fund finance has developed into an important source of liquidity
for private equity funds.
Historically, fund finance has been limited to credit, secondary
and infrastructure funds, but now we are seeing private equity tap
into this market, which continues to see significant activity year
over year. Fund managers have been seeking additional liquidity
since the wake of the pandemic, and amid an uncertain market new
lenders are rushing in to fill the void. As a consequence, demand
is outpacing supply, creating fertile ground for innovation in deal
structure.
Traditional fund finance typically consists of subscription line
financing, in which a fund would pledge to a lender the right to
call capital from limited partners. The lender's recourse is
limited to the partners' obligation to make capital
contributions in accordance with the terms of the fund documents,
and the loans are short-term, requiring periodic paydowns. These
revolving loan facilities allow the
