Aberdeen and UK insurer team up on fund finance

Aberdeen Standard Investments has partnered with one of the UK’s largest insurers to offer early-stage fund financing to private fund managers.

Phoenix Group has put up £500 million ($657.4 million; €565 million) from a series of liquidity- and short-duration funds, according to a statement from Aberdeen Standard. This capital will be extended in the form of investment-grade, short-duration loans to private fund managers in the pre-investment phase and secured against investors’ undrawn commitments.

Senior investment manager Ian Shanks will lead the strategy. He helped establish the fund financing business at Bank of Scotland, the statement noted.

“The mandate is a strong example of the ongoing close collaboration between our two firms and an opportunity to develop a highly specialised mandate with a sophisticated investment sponsor,” Neo Mooki, Aberdeen Standard’s investment director, said in the statement. “This development could also lead other insurers to explore allocating capital to a private markets fund financing strategy, an area that has been overlooked by most insurers to date.”

The strategy is mainly driven by the Solvency II regulation, which places capital requirements on insurance companies similar to the ones the Basel regulatory framework places on banks.

Phoenix Group had £74 billion in assets under management as of the end of last year, according to its latest annual report.

Richard Chapman, head of corporate development and strategy, private markets, at Aberdeen Standard, stresses that the product is meant to supplement, not replace, the role of banks.

“It helps banks from a capital requirements perspective if they can syndicate alongside us,” Chapman told Private Equity International. “It gives them more capacity [from a capital requirements standpoint].”

The loans will be credit-rated based on a system developed internally by Aberdeen Standard. According to Chapman, the external agencies did not have the right models and experience to rate the product.

The strategy will for now be run through a separate account but can also work through a pooled account under a Luxembourg partnership structure, Chapman said. Aberdeen may roll the strategy out across other insurance companies, he added.

For the investment manager, the move is part of its strategy to offer fund financing across the life of a given vehicle. In May the firm announced the acquisition of Hark Capital, which extends loans to mid- and end-life private equity and venture capital funds.

“At the start you’re getting your recourse to the undrawn commitments [in the form of a Phoenix-type structure],” Chapman said. “Once you’re on the investment period you get recourse against the portfolio net asset value.”