Fund Financing: an ever-growing demand from fund managers

​Last month Arendt organised a conference on the fund financing in Luxembourg. Trends in the fund financing market were discussed: structuring options, type of securities available and fund documentation issues.

While the fund financing market is already well tested in the US, an increasing number of European financial institutions have created/developed a line of business to respond to an ever-growing demand of bridge financing from fund managers, in private equity transactions mainly. In addition to facilitating an acquisition when funds are not yet available, these line of credits also allow fund managers to, for instance, smoothly carry on follow-on investments, bridge co-investments, bridge currency mismatch, but also, in some cases, to provide liquidity to cover pending management fees.

Such bridge financings are usually secured against the investors’ commitments in the fund. In this context, the lender is granted the right to jump into the shoes of the general partner should the latter fail to make capital calls as provided for in the fund documentation and receives security over the capital commitment accounts. It is therefore key for advisors/lenders to have a very good understanding of the different fund structures and more specifically, of the provisions that govern the LP/GP relationship.

In this context, Luxembourg has seen a development of fund financing activity in the recent months, mostly in the PE sector but now also expanding to other alternative classes, including emerging markets. The possibility to put in place efficient security packages when granting such bridge facility to a Luxembourg fund is surely one of the main reasons for such resurgence.

At Arendt, we joint forces from our teams on the fund formation side and on the financing side, allowing us to provide top quality advice to lenders with respect to putting in place efficient security package when granting a bridge facility. Because of our size and our expertise, we cover a large part of the fund financing market and as such, are very much active in setting the Luxembourg trends of that niche market.

Should you require more information, please do not hesitate to contact our team:Camille Bourke,Matthieu Taillandier,Mathis Prost.