Global Fund Financial Trends 2022 – Finance and Banking

After another record year of deals, both in size and volume, the resilience of the funds funding market is expected to continue through 2022. With larger funds raised, there is a corresponding increase in scale financing as new market entrants, both borrowers and lenders, create competition with traditional lenders. Generally speaking, the market continues to see new lenders and borrowers and products are evolving to meet the increasing variation in investor demands. Umbrella structures find their place in all regions as large fund managers seek to achieve efficiencies across their portfolios.

Along with the macro trends identified above, Walkers has prepared jurisdiction-specific commentary of the most salient aspects of the market today. If you have any questions about any of the trends included, please contact our industry specialists below or your usual Walkers contact.

Asia-Pacific: increase in installations related to ESG and sustainable development

Across the Asia-Pacific region, we have recently seen a significant increase in the number of environmental, social and governance initiatives (“ESG“) and sustainability-related facilities in the fundraising space. Facilities incorporating ESG characteristics have been an area of ​​focus for sponsors and lenders in the region for some time. Walkers has acted as Cayman Islands advisor to lender on world’s first capital purchase facility with interest rate tied to sustainability criteria.

We have also seen an increase in activity over the past few months, both in terms of performance-based facilities (with pricing indexed to performance against an agreed set of key performance indicators) and use of product facilities (providing pricing incentives for loans used for ESG purposes) .

We expect this increase in activity to continue throughout 2022 as sponsors continue to seek ways to include ESG concepts in their lines of credit and more lenders position themselves to be able to offer and monitor ESG-related conditions.

In addition to ESG-related trends, the rapid growth and maturation of the private capital market in Asia has led to increased demand from managers for more tailored liquidity solutions. Lenders have stepped up to meet this demand, with NAV and hybrid facilities becoming more common and we have also seen a notable increase in the number of GP financings and management fees.

Bermuda: ILS and collateralized reinsurance managers turn to debt

Over the course of 2021, in Bermuda, we have seen a general upward trend in fund finance activity, with underwriting lines and hybrid facilities continuing to be popular. Specifically, in the area of ​​(re)insurance, a number of asset managers whose investments focus on insurance-linked securities or secured reinsurance have found themselves seeking alternative sources of capital. and have taken on more and more debt to help fund renewals in this area. With the combination of the global COVID-19 pandemic and a pattern of catastrophic increased activity in recent years, there has been an increased need for capital in the industry and we expect the trend to continue through 2022. .

Cayman Islands: US managers shift to asset-based or SPV facilities

For the Cayman Islands, where we primarily face the North American fund financing market, we have seen a notable increase in the use of asset-based or SPV facilities by funds, largely due to the advantages in terms of costs and enhanced lender protections that these facilities offer. . It is expected that the continued growth of super funds will lead to increased demand for umbrella facilities, which offer a host of benefits including lower fees and price and schedule savings.

Another recent development concerns the Padma case which changed the procedural steps for a creditor to seek the liquidation of a Cayman Islands exempt limited partnership (“ELP“).

Prior to Padma, a creditor could petition for liquidation in the Grand Court of the Cayman Islands (the “Great Court“) seeking the liquidation of an ELP incorporated under the Exempt Limited Partnerships Act (the “ELP Act“) directly. But in the Padma case, the Grand Court reminded the parties that an ELP does not have a separate legal personality and that it is through the general partner(s) of the ELP that the debts and obligations of the ELP are performed. Consequently, the Grand Court does not have jurisdiction to order the liquidation of an ELP on presentation of a petition for liquidation by a creditor. The Tribunal de Grande Instance concluded that the recourse of an unpaid creditor consisted in presenting a petition for liquidation against the general partner of the ELP, which would then necessarily result in the business of the ELP being also in liquidation.

Channel Islands: record figures for Guernsey and Jersey

2021 has been a banner year for our fundraising teams across the Channel Islands. Consistent with Walkers’ observations in other jurisdictions, we have seen an increase in the number of transactions, the value of those transactions, and the variety of products brought to market. Notably, an increased number of NAV facilities closed throughout the year and particularly in the last quarter. We generally see more bespoke installations and increasingly complex security packages as more sophisticated fundraising solutions are required.

Additionally, and on the fund formation side, we have seen an increase in funds interested in investing in digital assets and crypto, as well as cannabis-related health funds in Guernsey following the launch of the first such fund. in 2020. It will be interesting to see if these funds represent a challenge for the traditional fund financing market. Otherwise, continuing the themes of 2021, we expect to see even bigger funds, bigger installs, and more syndication during 2022.

Ireland: Increased demand from established lenders and new entrants

2021 has been a strong year for the Irish fund industry with AUM reaching an all-time high of c. €4 trillion across over 8,350 Irish resident funds. Ireland also continues to be one of the leading hubs of hedge fund administration with over €6 trillion in assets under administration. We continue to see increased activity from established lenders, but also new entrants into sub-ranges, NAV and hybrid facilities that are used by managers more frequently and earlier in the life cycle of their funds. This has been particularly true for super-funds and large global fund managers where we have seen greater transaction sophistication and an evolution of bespoke borrower-focused terms.

ESG and social impact investing is on every board’s agenda, especially as managers tackle the additional disclosure and transparency requirements being rolled out across the EU under the SFDR and Regulation of the EU on taxonomy. 2022 promises to be another year of green finance and sustainability-related product innovation as market participants continue to embrace ESG factors at the forefront of their decision-making processes.

The recent overhaul of the Investment Limited Partnership (“ILP“) product has created an onshore, regulated and tax-transparent, highly versatile, “best-in-class” partnering vehicle for venture capital, private equity/credit and real-asset strategies, including infrastructure funds.The ILP can benefit from the pan-European passport under the AIFMD and can be marketed to a wide base of non-European investors thanks to local registration and private placement rules. without cross-defect or cross-contamination We are already starting to see a steady stream of new ILPs hitting the market in Q1 2022 as many managers see the clear benefits of the structure We are also anticipating legislative reform of the 1907 Limited Partnership later this year.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.