The many facets of fund finance

The financing tool is making its way around alternatives, as evidenced by three major transactions in different corners of the market.

Dislocation from covid has led to increased interest in preferred and structured equity. There was $7.8 billion of preferred equity transaction volume in 2020, compared with $3.7 billion the year before, according to investment bank Evercore. NAV-based loans and funding GP commitments are also popular as dry powder looks to capitalise on the maturation of private markets. Here is a round-up of recent fund finance activity.

Green rates

Baring Private Equity Asia secured an ESG-linked credit facility of up to $3.2 billion to support its private equity platform. According to an announcement by BPEA, the loan’s interest rate is linked to sustainability targets in two primary areas: gender diversity at the firm’s portfolio companies; and greenhouse gas emissions reporting and reduction.

The facility is the first of its kind in Asia and is on a similar scale to those agreed by Carlyle for its US and European businesses and by EQT for its private equity and infrastructure businesses. There are two sustainability co-ordinators – Standard Chartered and BNP Paribas – and nine lenders. An independent third party will verify performance against the targets. “We hope this pioneering debt facility will set a precedent for the private equity industry, not just in Asia but globally,” said Jean Eric Salata, chief executive and founding partner of BPEA.

Credit facilities, both at the fund and the portfolio asset level, are increasingly being linked to sustainability goals. However, there is not yet a standardised approach. At affiliate title Private Debt Investor’s 2021 Virtual Forum in September, one investor described the area as being “a little bit like the Wild West in terms of what people are doing”.

Billion-dollar stack

Fort Worth, Texas-headquartered Crestline Investors has closed its second vehicle dedicated to fund finance. The credit manager raised $1 billion for Portfolio Financing Fund II, which makes preferred equity and NAV-based lending investments in private equity, real estate and infrastructure funds.

“Market environments have created dislocations and opportunities across the private markets,” said Amit Mahajan, managing director and co-head of Crestline’s Fund Liquidity Solutions Group. “Fund financing products have increasingly become a valuable and accepted portfolio management tool for sponsors and their LPs.” Fund II came to market in May 2020; its target is not yet clear. Crestline’s 2018-vintage predecessor collected $597 million against a $500 million target by final close in November 2018.

GP stakes attraction

New York-headquartered GP stakes firm Hunter Point Capital has made its second announced deal in a firm that takes preferred equity exposure, reuniting the names that make up the ‘G’ and ‘S’ of GSO Capital Partners. Hunter Point announced in January that it had acquired a minority stake in credit investor Iron Park Capital – a firm created by Hunter Point chairman Bennett Goodman’s former business partner and fellow GSO co-founder, Tripp Smith.

Iron Park invests in public and private credit, the latter through its Atlantic Park joint venture with growth investor General Atlantic. The JV seeks to write $200 million to $300 million in cheques to individual situations in the US and Europe, and makes opportunistic credit and preferred equity investments across sectors.

The firm is in the market with its second vehicle, according to an SEC filing. Atlantic Park Strategic Capital Fund II will seek up to $5 billion, PEI understands, and expects to close by the end of H2, according to the filing.

Hunter Point is investing out of its inaugural fund, which is reportedly seeking $2.5 billion and has already closed at least $1 billion. This is one of the only GP stakes PEI is aware of that includes preferred equity exposure.