- Preferred Equity and Preferred Leverage. In addition to the usual players in the preferred share space, we saw robust participation by secondaries funds in the . The preferred shares were often accompanied by a financing – either in connection with the acquisition by the secondaries fund or as a dividend recapitalization by the issuer of the preferred share.
- Secondaries Financing. With top secondaries fund sponsors continuing to raise record amounts of capital, mega-funds are likely to support robust trading levels in the secondaries market. And we expect a material portion of that trading to be funded with debt.
- Hedge Fund Financing. 2021 was a strong year for financing for hedge funds. Not surprisingly, much of that activity was the result of new fund launches by, and large mandates for separately managed accounts awarded to, the largest investment managers of funds of hedge funds. But we have also noted a recent surge in single-manager hedge fund transactions (loans to feeder funds, general partners, management companies or principals secured by interests in a single affiliated hedge fund). This market has been comparatively quiet the past few years.
- Portfolio Hedging. LIBOR amendments dominated lawyer time sheets in Q4, but we are having a lot of discussions with lenders and borrowers around strategies for most efficiently incorporating currency and interest rate hedging programs into financing offerings. Given the increasingly international focus of investment portfolios and concerns about potential increases in interest rates, we expect to spend more time on portfolio hedging issues in 2022.
- Upsizes. While new deals get all the attention, upsizes of existing deals have been the quiet drivers of profit growth for a lot of NAV-focused businesses. Staying close to clients and providing flexibility to meet their evolving needs pays off. Valuation increases in investment portfolios and investor expectations for online payday loans Ohio accelerated returns of capital have been material factors driving upsizes.
ESG
Environmental, social and governance dealmaking has been an increasingly relevant topic the last couple of years and, as has been discussed extensively in Fund Finance Friday, has become a growing component of the subscription fund finance market generally. However, on the NAV side of the market, we have yet to see ESG make meaningful inroads in deal structuring and documentation. This obviously makes it more difficult to provide financing incentives to a fund based on ESG investment metrics in these contexts. Nonetheless, it will be interesting to see how ESG continues to impact the fund finance markets in general and whether we will start to see ESG make an impact on the NAV financing market in particular.
NAV facilities are typically provided to funds in the later stages of their investment activity or to funds that are using NAV financing to acquire or leverage a specific investment or portfolio of investments
LIBOR/SOFR Amendments. While LIBOR remediation has been in full swing for quite some time in the subscription finance world, the LIBOR transition has really just begun in the U.S. NAV markets. Given the more targeted use of NAV financings in general, there is typically a smaller subset of currencies available to borrow for any particular facility. As a result, the LIBOR transition date for non-USD LIBOR rates had a much smaller impact on NAV financings (at least in the U. We expect 2022 to be a different story.
Pandemic 4.0. Other than some cancelled plans and a short-lived (we hope) return to WFH, the market has thus far proven to be impressively resilient in the face of Omicron and its staggering case counts. Whether it’s because the prevailing wisdom is that this latest wave will ebb as quickly as it flowed or that we are all just much more familiar with the pandemic playbook at this point, deal flow is full steam ahead and the new world order macroeconomic concerns are once again focused on mundane things like a hawkish Fed and inflation.