UBS fund financing unit takes secondaries market share

UBS is providing asset-backed fund financing through a partnership between its secondaries advisory unit and its global equity derivatives group.

Phil Tsai, global head of the bank’s secondary advisory group, and Chris Baxter, US head of fund financing and investments, are leading an effort they called a joint venture.

It has executed between $2.5 billion and $3 billion in total loan value across around 20 private equity fund financing transactions over the last 24 months, the pair told Secondaries Investor. Loans have ranged between $25 million and more than $1 billion.

“We work hand in glove in originating, evaluating and pursuing PE fund financing transactions that have become a bigger component of the secondary market as a whole,” Tsai said.

Tsai said the platform originates, evaluates and pursues fund financing transactions. Clients so far have included secondaries funds, family offices and pension plans.

The two main deal types the partnership has executed are providing acquisition financing to secondaries funds and credit facilities to institutional investors as an alternative to a secondaries sale, Baxter said.

“We’ve been active in the private equity secondary advisory space since the early 2000s and our financing effort is a natural extension of that,” Baxter said. “This allows our clients to be more opportunistic and take advantage of private equity opportunities, enhance returns or simply manage the timing of cashflows.”

Using the secondary advisory unit’s knowledge of private equity funds allows the partnership to differentiate itself from other lenders, Tsai said.

“Many other lenders are more purely top-down statistical based – they don’t focus as much on the differences in quality of the funds and GPs within a portfolio,” Tsai said. “Also understanding how the assets price in the secondary market adds an extra element of differentiation when we have internal approval discussions.”

The types of loans include term, revolver and delayed draw facilities.

Collateral for the loans include diversified private equity funds and co-investment portfolios ranging from fewer than 10 funds to tail-end portfolios comprising hundreds of fund interests, Tsai said.

UBS also provides stapled acquisition financing packages to enhance the marketability of select secondaries deals, Tsai added.

Loans are typically priced at between LIBOR-plus 250 and 350 basis points and there is an upfront fee of between 50 and 100 basis points based on the value of the loan. Terms are mostly between three to five years and with loan-to-values typically up to 50 percent of the size of the loan.

Fund financing facilities held by banks and other financial institutions are estimated at around $400 billion, according to the Fund Finance Association. Acquisition financing for secondaries portfolios via levered special purpose vehicles increased to 40 percent of all deals last year, up from 20 percent the previous year, according to Campbell Lutyens’ 2019 Secondary Market Overview.