Global Fund Finance Liquidity Solutions for Private Market Fund Managers

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Christy: Hello, everyone, and welcome to today's webinar, "Global Fund Finance Liquidity Solutions for Private Market Fund Managers." My name is Christy DeMaio Ziegler, and I will be your host for today from the CSC Webinar team.

We're very fortunate to have some amazing speakers who will be sharing their insight and expertise with us: Jonathan Spirgel, Managing Director of Cash and Liquidity (Public Markets) at Hazeltree; Stephen Quinn, Senior Managing Director at 17Capital; James Rock-Perring, Head of Fund Finance Advisory at CSC; and our moderator, Marshall Saffer, Managing Director and Global Head of Funds Service Line at CSC. Without further ado, I'd like to pass on to our speakers.

Jonathan: Thank you very much, Christy. My name is Jonathan Spirgel. I'm with Hazeltree. I've got about 35 years of experience within the banking and treasury sector, both on the private markets and the public markets side as well.

Stephen: Hi, Stephen Quinn at 17Capital. We are a dedicated provider of NAV finance across preferred equity and NAV loans. I've been with 17Capital four and a half years, the prior 20 years in some form of private equity financing, most recently as Global Head of Financial Sponsors at Lloyds Banking Group, with responsibility for their fund finance business.

James: Thank you. I'm James Rock-Perring. I head up the Fund Finance Advisory business here at CSC. We advise private market funds on the raising of finance facilities across subscription line and NAV financing. Previous to CSC, I was at Lloyds Baking Group on the Fund Finance team, and prior to that about 15 years experience in the leveraged finance market.

Marshall: And I am Marshall Saffer. I'm going to be the moderator for today's panel. And my background is about 30 years of working in the hedge fund and the private market space, providing solutions and software to this industry segment.

So in terms of today's agenda, what we'll be discussing today is a general overview of the fund finance landscape in terms of providers, the ecosystem, some of the challenges, the market. We're going to talk about NAV market dynamics, and we're going to talk about treasury and cash management, fund financing market and the roles that advisors play in this space, common issues and bottlenecks that the group has seen, and the evolution of the fund financing market.

So what I'd really be interested in, so what we're seeing in the private market fund space is it's definitely become a very interesting market globally, right? We're seeing rapidly changing macroeconomic factors, such as what inflation is doing and the interest rate changes. We're seeing a very muted exit environment and a consequential slowdown in fundraising and deal activity. And our thoughts are that this requires a very deep understanding of the fund financing market and the relevant providers of liquidity to stay ahead, as well as the best practices associated with this market in general.

So I'd really be interested to hear the panel's perspective on what the main liquidity concerns that private fund managers face in the current market. Jonathan, perhaps we start with you. What are your thoughts around what you're seeing in the marketplace and any insight you can provide?

Jonathan: Great. Thanks, Marshall. A pleasure to join you today. So our view is a little different than I think some of the other member of this team. We're in the technology side, and we cover a broad swath of alternative managers, both public and private. But today we'll focus really on the private side and what the concerns are for our clients.

So back two years, when interest rates started to increase, we saw some of those dynamics change of how private markets entities behave. And then this March, specifically with the stresses in the banking segment, we saw some new dynamics kind of show up. And what I mean by that is the ability for clients and private funds to understand where their liquidity is, not so much focused on the fund financing, although that's extremely important to them and it's the lifeline of what they do. What they really wanted to understand in a very cohesive, quick manner is: Where are my exposures? Where's my liquidity? How do I manage that? How do I understand the impacts it has?

It used to be, and I've learned this from my hedge fund days and I'm sure you as well, Marshall, back in 2008, liquidity is of paramount concern. How can I access liquidity on a moment's notice when I need to have it for from closing a deal or an investment or I need to make a payment? How do I understand where my liquidity is?

And previous to this March, we saw many of our clients use bank portals or technology where they needed to be able to aggregate their information, and they did it on a sporadic basis. Now we've seen the market really change, where folks need to understand where the liquidity is coming from and how can they access it. Not understanding where their liquidity is can really put them behind the eight ball as they do their daily activities as it relates to treasury and cash management, which fund financing is, of course, a very important part of that. But that dynamic has changed dramatically.

So I'll leave it at that. I know we're going to get into probably a little deeper exercise on treasury management. Happy to pick it up there.

Marshall: Okay, thank you. Stephen, what's your take? What are you seeing, or what are your thoughts?

Stephen: Certainly one point, Marshall, I pick up on, that was mentioned, is the difficult exit environment, which we have seen certainly for 12 months, probably 18 months. I'm not convinced we're at the end of that particular challenging tunnel just yet. And I suppose, from our perspective, what we're seeing is that loan managers are holding these portfolio companies, these assets for longer. But that then has an impact elsewhere. It makes the fundraising environment very challenging. Again, we've seen not going hand-in-hand with the difficult exit environment.

LPs are not getting the level of liquidity that they have become accustomed to over the last 10 to 12 years, where they were actually the net beneficiaries of capital over and above what they were drawing. We see it at the management company level, with ambitions to scale and diversify and grow, but the liquidity that they would be generating, either through AUM or through sales, etc., isn't coming.

So it's one issue, but it permeates the whole market. And again, on new deal doing is tough also, particularly in terms of platforms. So I think if you look at 2022, around about 60% of deal activity was buy and build, and that makes sense because I'm going to hold the assets for longer. I want to invest in them. I may have exhausted my investor capital. So from a NAV perspective, that ability to generate further growth capital is a big requirement of the industry.

And then probably the final point is really around about generating liquidity for your LPs. It would be like finding what I would like to call a liquidity alternative because you're going to have to hold these assets for longer. You want to create some kind of liquidity event for your investor. For a lot of investors, that is highly appreciated liquidity. But it also de-risks the investors as well. And again, it creates a runway, if you like, a platform to hold these assets and grow them for longer.

So certainly the challenges in the exit environment are really causing quality managers to look at things a bit differently and look at their alternatives a bit differently.

Marshall: Interesting. Okay. And then, James, what are your thoughts? We might as well round up this question from you.

James: Yeah. Well, Stephen has spoken a bit about the NAV market, so just around on the fund finance markets, sub line and NAVs, say from a subscription line market, sometimes called capital call line markets, and that market is big. I mean, it's about $700 billion globally, right, in the U.S. and Europe. So if you look at the number of banks in the market, there's over 100. More recently more so in the U.S., these banks need to hold more capital now against these loans, and coupled with the fall of SVB, Signature Bank, and First Republic, that took about $40 billion of that lending out of the market.

So as a result of that and the general economic environment, banks are much more selective and slightly restrictive in terms of balance sheets. So there's a slight funding gap and a lack of supply of subscription line facilities to private market funds. So if you're a first time financing, it's extremely difficult to find a facility. Midmarkets, it's reasonably difficult. And if you're a larger manager, it's not as easy anymore, and the banks' ticket sizes are smaller, so you're having to put more banks to a club or a syndicate, but it's still quite hard and scarce to find liquidity.

Banks are being selective. They're not just looking at the lending. They're asking for deposits. They're asking for more ancillary income, FX banking, etc., M&A mandates. So it's a much more difficult market, a big lack of supply in the subscription line markets. I suppose a small tick into that is that your interest rates are up, so maybe there's a pullback in the size of the lines because obviously it's more expensive. I mean, Europe for example, used to be negative not that long ago. It's quite materially high now. Same in the U.S. with the cost of funds.

And then fundraising has slowed slightly. So that's a slight mitigant to the demand side. But once fundraising comes back, interest rates hopefully subdued, this tool which is used by more than 80% of managers, you'd expect that the demand or the supply gap to even widen. So I would end by saying that there's a small number of entrants coming in maybe from the institutional side, which might help to fill the gap. But we can talk about that further on in the webinar.

Marshall: Okay. That was extremely helpful for me. So let's move on to the next question. So there's been a lot of talk, and Stephen mentioned it, James and you have mentioned it, is this concept of the NAV market and NAV financing. So for people that might not be 100% familiar with the concept, can we start off with a definition of NAV financing, just so we can all be making sure we're talking about the same thing? And then if we can discuss why managers are now using these facilities and what's the broad range of facility types that are available that can be leveraged. Is that okay? Stephen, could you kind of pick up from here?

Stephen: Yeah, thanks, Marshall. You're certainly right that there's probably been more discussion and written pieces about NAV finance in the last 3 years than the previous 15, albeit that it has actually been around. So maybe go on to the net asset value in terms of like the fund finance landscape.

In simplistic terms, on the sub line, the capital call, which James has summarized very well, the recourse is to the institutional investors that invest in that private equity fund. In NAV finance, your collateral pool are the assets that the manager holds for example. And that's at the most basic level, and I'll try and maybe just expand on that a little bit. In the interest of time, I won't try and cover the whole universe because that would end up being a little bit of a monopoly of everyone's time. But maybe I'll just cover a couple of pertinent points as to why I think you're seeing that growth.

I think the first thing really is the relevance across private equity stakeholders, and that might be private equity funds. That might be the managers of private equity funds, and by that I mean the management companies themselves, and also investors in private equity. So you've got this hugely diverse audience for which NAV finance can be very, very relevant. There will be specific drivers for each. The use case for NAV finance for each of those will be a bit different, and NAV finance can be tailored to that.

You know, related to that is there's a very broad choice of structures within that NAV finance universe. The structures, the features, the benefits and that could be, certainly for us, that ranges from the very flexible, potentially higher LTV preferred equity type offering, which becomes particularly relevant we've noticed over the last few years at the management company for growth and succession planning, etc., into the like lower-cost NAV loans, which is more of a debt like kind of characteristic.

And then again, when I think about growth, I think there's one other pertinent point. It's around just, and I think we've picked up on this, it's just the general lack of alternatives in the market. And when that happens, managers need to find new ways to finance the growth and the liquidity needs. Private equity managers are not very good at sitting on their hands and doing nothing. And really what you've seen, not just over the last three or four years, but perhaps an acceleration, is that NAV finance has really come to the fore as one of those alternatives to such an extent where it's actually now probably quite embedded within, if you like, the financial toolkit for managers.

Marshall: Interesting. Okay. James, what are your thoughts? I mean, this is what you do for a living, right, in terms of helping people and assisting them in finding the partners?

James: Yes. So to add on to what Stephen said, so just to summarize, NAV loans are the money back to investors of what you're investing in the fund, in the portfolio. It can be used by the fund. It can also be used the general partner as well. So I think maybe it would be useful to add, for my side, when I look at it, because I face or back into the market, so I will have a list of what I would call NAV banks and NAV credit plans respectively. The NAV lending market, when we talk about the sub line market, say there's a hundred providers of sub line. I think on the NAV side, it's growing and could even be bigger or getting bigger.

So what I would say is that in terms of the number of parts available, and Stephen touched on it there, was if you get more to the NAV requirements where there is a lower LTV or there's more diversification in the portfolio of NAV, then you get into the banking market and then your margins are lower and the lower risk product, and that's more conservative. Then as you move up the capital structure, you get to a slightly higher LTV, maybe more concentrated portfolio, and that's when it morphs from a bank lend into a credit fund land. And the further up you go in the capital structure, where you maybe want more flexibility if you don't want it to be a debt like product, it becomes more pref with no term and no security, the margin creeps up and you get to the point where maybe a GP wants to use what I would call may be structured equity, where there's no actual fixed interest or coupon and it acts as a pure waterfall, but it's not equity. It's cheaper equity.

So there's a myriad of products and tools, and Stephen mentioned as well it's not just an off-the-shelf product. It's very tailored to the fund. So when you go out to the market, it's very hard to go out with a generic ask of these are the terms I want. A lot of it's iterative, and also the structure and the pricing can vary between lenders. And sometimes it can be a crossover between is it a credit fund, NAV deal, or is it a bank deal depending where you are in the LTV and the concentration.

So I would say that I would probably leave it at that because, as Stephen said, this is a topic you could run a whole webinar on. But yeah, there's a lot of tools. There's a lot of lenders in this market.

Stephen: This is the first time I've heard James saying that he actually speaks to another credit fund lender. This is news to me, Marshall.

Marshall: That's great.

James: I was going to tell you afterwards, Stephen.

Marshall: Well, let's change gears a little bit. Now that we've kind of defined it and we've described the type of applications for it and the type of instruments and what can be leveraged, I'd like to kind of talk about effective treasury and cash management and some of the concepts around how that contributes to enhancing the overall financial stability or the given performance of the fund or the concept as the treasurer and the treasury functions actually adding alpha to the performance, and how technology might be able to play a role in that.

So, Jonathan, I think this kind of fits into your sweet spot. So I'm going to ask you the question or respond to the question of how do you think that technology and best practices comes into play. And if you can give some examples, that would be great.

Jonathan: Sure. So yeah, the market has evolved in this space over my career to say the very least. But let's go back to one of the main tenets of a proper treasury management structure. And I'm talking from a treasurer's perspective, not from the investment side of an organization. It's preservation of principal. It's liquidity and performance. And every time I talked to a treasurer about those three principles, I always ask them, "What's the most important if you can only pick one?" And they start with performance. "I need performance. I need performance." Until they don't have liquidity, and then liquidity becomes the most important part of their life. And we've seen that multiple times. So it's a very interesting question.

And as treasurers start thinking about their platform and how they're going to manage their portfolio, so to speak, to be able to work within their firm, they need to define what the most important premise is within that. And in order to do that, you have to understand where your liquidity sources are.

And so from a private markets perspective, clients have cash reserves that they keep in a bank. Which bank, how many banks? Really, really important understanding what those risks are within that organization where they decide to keep those assets. And then where can they bring on liquidity and how quickly can do that as well? Capital calls, the credit lines that James and Stephen just spoke about, and how can I put them into a platform where I can see that at a moment's notice in a stressful situation or just in normal course of business.

So there is technology, we do that at Hazeltree, to be able to bring that all into a platform, bring it into a solution that every morning you wake up you can see where those liquidity sources are, and then you can act upon them. So you don't want to spend a tremendous amount of time, which currently is occurring or evolving within the private markets landscape, where you're putting that information together. You go onto your bank platform, see my balances. I find out where my capital call capacity is, where my lines are, which banks, what's the rates on the various features I have, and then how do I actually execute on that and when do I actually get the liquidity.

So we put together, within Hazeltree, the ability to be able to pull that all together within your fingertips, to be able to execute on that and really figure out (a) from a treasurer's perspective of where my liquidity is, where my assets are, where are the arrows I can potentially shoot. And then, of course, making sure that performance, do I want to pull on that capital call, do I want to pull on the credit line, which is the most advantageous depending upon the risk and return associated with those types of things I'm actively working on.

And so whether you're a small fund or a very large fund, these become quite complicated very, very quickly. And so, hopefully, by using technology, anyone's technology to be able to execute on that, provide the transparency in an almost real-time look and feel is really, really important. You can't do it once a week anymore, which we've seen back in March of this year. Some clients were pulling balances from banks on a monthly basis or a weekly basis. We see it really on a daily and sometimes intraday basis. They need to understand where their risks are and where their liquidity is going to come from.

So we could talk about that part for hours, but it kind of reminds me of back in 2008 the hedge fund community went through exactly the same issues. Now it seems like the private markets community, which has had tremendous growth over the past few years, are grappling with the same exact issues.

Marshall: Do you think that we're seeing a move to a dedicated treasury group within the large PE and private market funds? I know I'm seeing a transition. But I'm wondering about your take. And do you see outsourcing playing into this at all?

Jonathan: Absolutely. So we do see that, where probably three years ago, the treasury function within a private market shop was a guy who did payments and things like that. And I don't want to minimize that, but it was a treasury operation or an operational part of the organization. Now they're hiring and focusing on dedicated treasury staff and then looking at: How do I do this real time throughout the day? And so from that outsourced solution, using a technology solution, do I want to hire that group, or do I want to use someone that can help us make that happen in a very efficient manner with best practices already built into their processes to be able to do that? And so we've seen a lot of that.

We've seen treasury become front and center. Returns are really, really important. Costs of those returns are really important, and risk associated with that is really important. And so having that outsourced solution that can kind of bring that all together, using terrific technology, of course like we have, but we're not an outsourced solution like you guys are, to be able to do that in a very efficient, repeatable way every single day so there are no surprises.

The worst thing is you don't want to get that call from the CFO or the managing partner saying, "What's going on with our liquidity? Do we have enough? Do we know where it is, where our risks are? What's my bank health?" A bank can have a line to you, but if that bank is teetering, that line is not going to be of use to you and you're going to have to find another source of liquidity somewhere down the line. And so we've seen that as well unfortunately.

Marshall: Okay. So let's change over to the fund financing advisor role. James, do you want to kind of give us an overview about where that fits into the whole ecosystem and some thoughts around that?

James: Sure. Yeah, just to put it in perspective, if you look at the sort of private market or private equity assets under management say five years ago, when it was 2017, I think it was like $7.6 trillion. It's now $14 trillion. So it's an 80% increase. And as a result of that, you have the fund finance facilities, which have obviously grown in line, so a subscription line and NAV. And if you look just at the sub line market, I think it's grown from $400 billion to $750 billion. So you've got a large increase in the assets under management and a large increase in the number of facilities. And then on the flipside, on the supply side, I mentioned previously and Stephen mentioned as well, there's a marked increase in the number of lenders in the market, whether it be sub lines or NAVs.

So I'd say, as a result of that, the advisor role has sort of grown materially in the last few years, and it's effectively an intermediary between the borrowers and the lenders. If you had to put it in sort of three stages, I would say the role that they provide, one, is to source liquidity. So it's not only sourcing liquidity from working out which lenders in the market are available to provide the financing. Lenders have different appetites. Some are niche, some are not niche. It's quite a broad market. So it's sourcing the liquidity, also giving a lens into the market and updates. So I think that's the first step.

The second step is running a competitive process with a proportionate number of lenders to seek terms. The end of that sort of stage would be to pull all the terms together, all the term sheets together and do a compare and a contrast on a grid to work out who to negotiate with, who to push back on pricing, which key commercial terms to do that with. And at that point, the advisor would work out, depending on the size of the deal, whether it's a bilateral, whether it's a club or a syndicate of banks, all credit lines, depending on whether it's NAV, who to go with.

And then, the third stage where they have a role is project management advice through the execution stage. And really they sit between obviously borrower and lender. You'll have legal advisors both sides for the sponsor, for the lender. But effectively, they sit in the middle. They make sure the process gets done. They help with the bank's credit processes. They really deal with some of the most commercial terms or the bottlenecks that may happen in the execution phase and just make sure that there's a successful outcome. And this is across multiple products.

And I'd say the last thing to say on that is that it effectively does help with bandwidth. So it depends on the size of the team that the sponsor has. If they have a big capital markets team, the need for an advisor is less, albeit sometimes they tend to outsource a smaller line or a smaller financing. But generally speaking, sizable midmarket managers all the way down to small managers and first-time funds, there's generally a role because it's pretty time-consuming, one, is to go and find their lenders and source liquidity and also to obviously put these facilities in place.

Marshall: So the ideal client is someone that has not staffed this themselves or is having capacity issues? I assume you add some efficiency to the process as well.

James: Yeah. I mean, if you had to say the sweet spot, it's actually quite broad. So it could be a manager who hasn't done it before or that just doesn't have the time. Or it could be a large manager that, for example, who if you're looking at it from a subscription line perspective, it's a cycle. They tend to only go out every couple of years. And also, if you've got some large banks in there, they already withdrew three from the last fund. That means they haven't gone to the market for two years. And if there's specific financing needs, especially on the NAV front there's probably a slightly bigger increase in the number of advisors on the NAV front . It's not like a NAV deal is done every single day. It's more needs driven.

So the size of the manager does have a bearing on it. But I wouldn't say it's the extremely large sponsors. It's more upper midmarket all the way down to the smaller manager I'd say is the sweet spot.

Marshall: Okay. And just out kind of curiosity, in terms of the number of lines that your average PE firm would be utilizing, is it one provider? Do they use multiple providers? I think some insights around that might be interesting.

James: Yeah. If it's a smaller manager, then it's a bilateral deal and the bank would be providing the subscription line. So as an example, that could be $40 million, $50 million, up to say $100 million. If you've got a $600 million to $800 million line, you might have two or three or four banks in that. And obviously, if you get to the very large clients, there's a large syndicate. It could be up to 15 banks in the syndicate, the sub line.

On the NAV front, I mean, maybe Stephen could talk to this one. I mean, it could be a bilateral. But if you're talking about a very large manager, it might need a few banks to be providing a NAV line. But Stephen had mentioned on the NAV front.

Stephen: Yeah, both of those scenarios, James, where probably the majority of our investments are on a bilateral basis, but you'll definitely see anything between small club deals to larger facilities just either necessitating more lenders or where the manager is keen to maintain a number of relationships within that facility. And again, it's the trade-off, isn't it, between obviously getting the required capacity for the NAV facility, but managing complexity in terms of the number of parties that you're dealing with. So it's not one-size-fits-all, but it's really that spectrum.

James: Yeah. I think from a bank perspective, if it's a large NAV deal, from a banking perspective, there's probably more chance there will be a club deal from that perspective. But if it's a $100 million, $200 million, you normally find that one single bank lender may be able to do that.

Marshall: Okay. That's very helpful. Next question then for the team is so from the borrower's perspective, what are the common issues or bottlenecks involved with putting a capital call line in place, and how about NAV facilities? James, why don't you pick that one up since it starts with the fund finance?

James: So yeah, look, I think from a sort of sub line, I'll touch on the sub lines, and Stephen can talk about the NAVs. Just really quick, the biggest bottleneck or issue now, obviously we've already touched on this the whole topic, is liquidity. The size of the lines are reduced because ticket sizes are smaller, so you need to probably find or definitely need to find more banks.

The other big focus now is stability of a lender because of what's happened to a few the banks. So borrowers are doing diligence on who their lender is from an operational perspective.

Another issue or bottleneck would be sub line lenders prefer an institutional investor base, so they tend to discount or exclude high-net-worth individuals or certain family offices from the borrowing base. The issue could be if you've got a very large percentage of family offices or high net worth, it's more difficult to put a line in place. First-time funds it's very difficulty.

The IRR benefit of a capital call line is it's fit to be a working capital tool, but it can be accretive to IRR. The cost of financing has now increased, so it's not at sort of the hurdle rates, but it's getting to the point where managers are focused on it to say, "Well, is it costing me to put the line in place?" I don't think we've hit that point yet, but it may not be as IRR accretive as it's been in the past. And it just takes longer to put a facility in place now because lenders are doing more diligence on investors and they're doing more general credit diligence on the performance of the funds. And banks are just generally taking longer to put these lines in place.

James: Stephen, how about you on the NAV side? What are you seeing?

Stephen: Yeah. Probably two points. There's probably 10, but I'll save these all. Mainly there's two main ones. One is the art of the possible. I talked earlier about and James has mentioned the flexible, the types of situations that can be relevant from. And whilst it's a space that's becoming increasingly familiar, it's not as ubiquitous as, for example, the capital calls subscription line market, albeit that that adoption we are seeing growing.

But again, if you think about the use cases, from a management company, how do I use NAV finance to grow and diversify, the platform, how do you manage succession planning. If I'm an investor in private equity, is NAV finance the alternative secondary seal? If pricing in that market isn't attractive for private equity funds, what's the optionality to create growth and liquidity when so many of the other alternatives isn't available?

We are seeing that awareness, that adoption increasing, whether that's the way we're seeing with sub lines, continuation vehicles, and fund-to-fund transfers, etc. So it will follow the same pattern.

And then perhaps the second one I would think, and this is where James was disseminating between if you like the more complex structures, there's a big premium on execution certainty. I completely would echo what James said about not being off the shelf. These are very bespoke. That might be going to the fund structure, the investment structure, tax considerations, the flexibility that you require in terms of future objectives. And that execution capability, that execution certainty is certainly something that gets flagged to us on a regular basis.

Marshall: Okay. Jonathan, I know this is not necessarily your area of specific expertise. But do you have anything to add?

Jonathan: Yeah, I think the one thing I would add on, and I'm not going to delve into the deep end of the pool here with the two gentlemen who do it every single day, but we see from the execution part of it, so we are done with that line. How do we actually make it happen when you have some very large funds that have a number of different lines and how they pull on them and how they make that as efficient as possible?

And the other part that we've seen a lot of discussion about, from our clients, is what we call counterparty health or bank health. In the old days, it would be wherever I keep my deposits, my balances, I wanted to know what that bank was up to, what their ratings were, and what the different criteria were. Now it's on the other side as well. Even the ones that we have lines to, I want to see what their health is. Even though they're lending me potentially money, I want to see how they're structured and how safe that line is in the event of something happening. So it's kind of flipped over a little bit. And so whatever type of counterparty has become more and more important.

And then the execution of whether it's moving cash, pulling on a line, how can I do that efficiently with the right controls within an organization, and who's got the ability to actually do that within an organization? So the controls have become really important. So picking up where the lines have been consummated, they're out there, how do I actually make it happen, and what organization, what managed service, what kind of other organization is going to get involved to help make certain that I'm doing it in the right manner that I've laid out in my controls as well? So it's really evolved over the past, I'd say, year or so from that perspective.

Marshall: Okay. Well, we're running low or almost out of time. So we've got one final question for each of you. Right? How do you see the overall fund financing market evolving through the rest of '23 and '24? Let's start with Stephen.

Stephen: I think you've used the right word, "evolve." The exit environment will remain challenging. Some of the headwinds that, if you remember 12 months ago, we thought some of those challenges may have abated slightly by now. They haven't. Where we see a bit more stress in the market, whether it's at the portfolio because of financing costs, macro headwinds, gap maturities, fundraising challenges, there's still plenty ahead of it. But the market will adapt. It will evolve. And whether that's from the lenders, whether it's credit fund, whether it's private equity participants, it will because that's what it tends to do. It will be, I think, a period of continued caution.

But again, in the meantime, investors, funds, the private equity managers, they'll continue to explore their options across the whole fund finance suite. And those products will develop, and they will start the adoption of these products, either for the first time or in just a much more consistent basis. Evolution and adoption is definitely the key for me over the next sort of 12 to 18 months.

Marshall: James, your perspective?

James: Yeah, just evolution and adoption. I think on the NAV fund it's more the adoption of becoming an asset class over the next couple of years because of the size of the net asset value in the private equity world and then obviously to continue with fundraising going forward. And then the continued use of sub lines, for example, will hopefully continue. I think, I mentioned earlier, there's this gap, liquidity gap, right? So the way that role is starting to be talked about and filled very slowly is through tapping institutional capital to come into the subscription line market to help out the banks. But the issue with them is that they tend not to like revolvers. They like term loan debt, longer-term debt.

So I think the key is to try and some managers will look to structure more. Some subscription line facilities as a form of revolver with a term element as well. I think Fitch is now starting to look at rating sub lines, which I think will help the banks a bit because that will mean they don't need to hold as much capital against these types of loans. So I think there will be an evolution of ratings, which will help more institutional. And I think there has to be a shift towards more institutional capital in the sub line market because the bank market doesn't seem to be keeping up with the pace with it now, and as it comes back, as fundraising comes back and interest rates maybe come off, there has to be more supply for that product.

Marshall: Great. And Jonathan, you want to give us some parting thoughts?

Jonathan: Yeah. I just think kind of filling out the end of that is how do we operationalize what everyone has spoken about just now into the infrastructure of an organization because there are so many different changes and growth. Excel is great, but it can't be the model that they use going forward. And the teams within a private equity shop that actually handle this need to come up to speed and be able to think about how they actually execute on these things that they put in place. So I think there's going to be more focus on that. I mean, costs have gone up. Will interest rates continue to go up this year? Are we going to get another increase in the U.S. in the coming days? Maybe. Are rates going to go down next year? Maybe. But that just adds to more complexity within the marketplace.

Marshall: Thank you. Well, I think we're just about out of time. So I want thank Stephen, Jonathan, and James for your participation. I think this has been great. The session has been full of great insights, and I'm very appreciative of you all sharing your thoughts.