Haynes and Boone, LLP Partner Albert Tan was quoted in The Wall Street Journal on new lenders entering the money-starved fund finance sector.
Subscription lines have become a standard part of private-equity back-office operations, used by virtually all funds, according to a 2021 survey by the Institutional Limited Partners Association, a trade group for private-equity investors.
Their use is so ingrained in the industry that even the spike in debt costs since the Federal Reserve began raising interest rates in 2022—bringing a typical subscription line’s cost from as low as 2% to 3% to, now, 7% to 8% or more—has not made a dent in the number of funds that use them, lenders say.
And as private equity has grown over the years, it has been difficult for lenders to keep up, a major reason there has consistently been more subscription-line demand than supply, said Albert Tan, co-head of the fund-finance group at law firm Haynes and Boone.
Banking rules also contribute to the capital shortage, he said.
Last year’s banking crisis worsened an already strained market. Subscription-line prices rose, with spreads jumping by 8.45% in the first quarter of last year, a Haynes and Boone survey said. Spreads have come down only modestly since then. “We are experiencing premium pricing in the fund-finance market, of the sort we haven’t seen since coming out of the last crisis” of 2007 to 2009, said Tan.
To read the full article in The Wall Street Journal, click here.
