Leverage is being used by secondaries funds more often and in increasingly targeted ways, according to investment bank Investec’s fund finance division.
This increasing demand for debt, particularly in the US, has led Investec to strengthen its fund finance team in New York, with team member Gregg Kantor scheduled to move over from the firm’s London office next month.
Leverage is being used in a number of ways by secondaries buyers, Investec fund finance head Simon Hamilton told Secondaries Investor.
“Firstly, secondary funds are increasingly looking to use leverage in the purchase of large portfolio funds,” Hamilton said. “Funds are also using leverage to increase their exposure to funds operated by favoured managers.”
Credit is also being secured to help restructure or recapitalise existing funds. And, he added, “Secondaries firms are leveraging against their asset base in order to either return funds to investors or to fund other investments.”
A more recent trend, Hamilton said, is for secondaries funds to use credit facilities to help them fully deploy all funds raised. “By using a revolving facility to meet undrawn commitments of their portfolio, they are able to get closer to deploying 100 percent of commitments. This in turn maximises value to LPs and also carry return for the team.”
Secondaries Investor reported previously that gearing was an increasingly common factor in large secondaries deals of all types, with banks more than willing to lend against high-quality, diverse fund interests.
Earlier this year, secondaries firm Lexington Partners was reported to have made use of a $1 billion credit line to help fund its $800 million purchase of a portfolio of 24 fund interests from the National Pensions Reserve Fund of Ireland. The portfolio included positions in Charterhouse Capital Partners’ Funds VIII and IX, according to a UK regulatory listing.