As competition for the most desirable assets increases among alternative asset managers, optimising capital structures, including leverage solutions, is key to supporting expected returns on equity. Richard Wheelahan, managing director and co-founder of Fund Finance Partners, explains.
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As competition for the most desirable assets increases among alternative asset managers, optimising capital structures, including leverage solutions, is key to supporting expected returns on equity. Richard Wheelahan, managing director and co-founder of Fund Finance Partners, explains.
How have your clients’ needs changed in light of the current macro-economic environment?
Many of the asset management firms that seek us out do so in connection with learning that their incumbent financing source (especially if this is a depository institution) is not able to provide financing, whether for a subscription facility or ABL for a credit strategy. Banks have had to contend with rapidly growing fund platforms, and in many cases, have fully allocated available capital to certain sponsors or types of facilities. In others, stress test results have resulted in meaningful reductions in allocations for certain types of financing. We’re frequently advising fund sponsors on alternative financing arrangements, sometimes resulting in completely new financing products or solutions, entirely.
What are the greatest risks both your business and your clients are facing at present?
Challenging alternative asset management markets certainly add complexity and a degree of difficulty to the work we do on behalf of clients, but as we experienced during the depths of the pandemic, our services were increasingly sought after. Our clients contend with different risks as fund managers, making unique principal investment decisions against the backdrop of the current economic and financial environment. Whether today, during the pandemic or during a period of uninterrupted growth, we feel that their biggest risk is losing investor capital in connection with a poor investment. Losses can sometimes lead to increasing risk, in order to compensate for that earlier loss.
Where do you see the most significant opportunities for growth in the coming year?
Investment strategies are increasingly becoming specialized, with new private equity or credit investment strategies being born from highly successful operators or managers with unique, specialized expertise. Those management teams may not have similar experience in managing third party capital in a fund or SMA format. Accordingly, one area that has already emerged, and which we expect to present even more of an opportunity this year, is creating funds or fund complexes for first-time fund sponsors – not to be mistaken for first-time operators or investors. These strategies are frequently private credit or specialty finance (or advanced biotechnology or pharmaceutical) in nature, and have proven to be highly attractive fund formation mandates.
How do you see the appetite for private assets shifting in the future?
As more of the world’s wealth and means of production are committed to or owned by institutional asset managers rather than individuals or publicly listed operators, this industry’s growth is unavoidable. The largest, most prolific managers are getting larger. Managers generating the highest returns are oftentimes hyper-focused on certain industries or scenarios which may not result in AUM or funds complexes that are as scalable. The appetite for private assets is one thing, but the enormous amount of capital flowing into private asset strategies results in a NEED for those assets. The competition among funds for the most desirable assets means that capital structures, including leverage solutions, need to be optimized in order to support the return on equity everyone expects.
Richard Wheelahan, managing director and co-founder, Fund Finance Partners – For over 15 years, Richard has advised fund sponsors and lenders dealing with fundraising, investor relations, compliance, financing, and portfolio management challenges and opportunities. Prior to co-founding FFP, he was the General Counsel, Chief Compliance Officer and a Director of a $3 billion asset manager investing debt and equity in lower middle-market companies. During his ten-year tenure, Richard executed numerous capital markets initiatives on behalf of the firm’s investment vehicles and oversaw fund formation activity, developing comingled funds, SMA concepts, a NASDAQ-listed BDC, and joint ventures. Richard also executed financings for the foregoing, including but not limited to subscription facilities, corporate and SPV revolvers, total return swaps, hybrid and NAV credit facilities, GP/asset manager lines of credit and securitizations of credit assets. Learn more.
