Throughout the course of this year, we have charted various developments in fund finance. One that has been brought to our attention recently – and which can be read about in longer form here – is the umbrella facility.
Traditionally, new fund finance facilities are established every time a new fund is launched. Whether it’s fund one, two or three in the series, each will see the creation of a new facility with fresh documentation. The umbrella facility, which was first seen around a year ago and has built momentum through 2017, involves just one facility with the same set of documents being used by multiple funds.
Demand for the umbrella facility is coming particularly from larger asset managers, which have moved beyond their buyout roots to embrace a range of other asset classes such as credit, infrastructure and real estate. The likes of Blackstone, EQT and KKR now straddle numerous strategies. For groups such as these, the cost savings and efficiency associated with having just one fund finance facility covering all strategies seems clear.
However, some lawyers say demand for this innovation is not only coming from the big, cross-asset class managers. Those with a single asset class focus may also have a range of strategies – one example offered being the direct lending specialist with a core direct lending fund, special opportunities fund and various managed accounts. For this manager too, consolidation into one facility could make sense.
Lawyers we have spoken to also point out that such facilities are very much in line with the recent call from the Institutional Limited Partners Association for LPs to become more acquainted with the facilities their managers are using. One facility per fund makes it difficult for LPs to identify nuances in any particular single agreement and it’s possible that some serious departures from market standard may slip through the net. Having merely to scrutinise one all-encompassing facility makes the due diligence task considerably easier.
Is there a downside? That seems to depend on whether you accept that fund finance can be highly specialised. There is a view that some providers are better suited to particular types of fund, especially ones with strategies outside the mainstream (venture capital and hybrid funds were mentioned). In these cases, a generic approach may not offer the flexibility they require.
For many fund managers, however, umbrella facilities are worth serious consideration. Expect them to be a growing feature on the fund finance landscape in 2018.