Last month I joined several of my Cayman colleagues in the bright lights of New York for the Funds Finance Association’s snappily named 6th Annual Global Funds Finance Symposium. And yes – we did remember to pack our thermals!
Lending to Funds — Subscription Finance Part II
Part one of this topic covered what subscription finance is, (loans to a fund secured on the undrawn capital commitments of its investors), and how it can benefit funds and their investors (increased liquidity, returns and simplicity). This final instalment covers (briefly) the mechanics of this type of financing.
How does it work?
The subscription finance facility would work the same way as a standard loan facility. As security for the subscription finance facility, the lender will be granted a power of attorney from the fund’s general partner (the GP) to step into its shoes and make the capital call to the investors, and/or an assignment of the right to make the capital call and to receive the proceeds of the capital calls. Finally, there will be a charge over the bank account into which the capital commitments are paid into.
Lending to Funds – an introduction to subscription finance
“Neither a borrower nor a lender be” wrote Shakespeare and in the aftermath of the credit crunch and the global slowdown, it seems that many banks are reacquainting themselves with the words of the Bard. And when they do lend, they are increasingly looking for more security, “safer” borrowers and higher fees.
On the face of it, a newly launched fund might not have the track record or the assets to persuade commercial lenders to lend monies to it. But these funds do have assets which they can make available to lenders – the uncalled capital commitments of their investors.