Sidecar Vehicles: Injecting Liquidity And Flexibility In A Challenging Fundraising Environment

Fund sponsors continue to face a challenging fundraising market and many are sensitive to increasing investor demand for liquidity. Higher interest rates and public market dislocation continue to make capital-raising difficult, while decreased fund distributions are limiting capital available for new commitments, leading investors to prioritize liquidity and invest cautiously.

In this challenging environment, traditional add-on sources of capital are proving inadequate, with many fund sponsors turning to alternative forms of debt financing, such as private debt funds, to supplement traditional bank loans. Similarly, fund sponsors are continuing to arrange for co-investors to invest alongside main funds on a deal-by-deal basis, either directly in a portfolio company or through a special purpose vehicle. Accessing capital with private debt or co-investment equity can work splendidly (and both strategies remain popular and active); however, they do have certain