Legal issues not related to the regional banking crisis were briefly noted. In the U.S., funds are preparing for the corporate transparency law, while counsel are monitoring a legal challenge, now in the Fifth Circuit, to enhanced disclosure requirements applicable to private fund advisors, scheduled to go into effect in 2025. Cayman is celebrating its removal from the EU’s and Financial Action Task Force’s grey lists. Lux attorneys are advising that under new reorganization laws, lenders will be able to enforce contractual security rights against a reorganizing borrower, but will not be able to accelerate debt, so it will be important for security enforcement rights and remedies to be separated from acceleration.

Subscription finance: Hot topics

By Cheryl Lagay

The panelists in this session discussed the following hot topics:

• Uncertainty: In an environment where fundraising is difficult, how do funds remain organized? Funds should be proactive and check in with counsel before they finalize LPAs. Fund counsel should then circulate the LPAs to debt counsel for review, before fund counsel finalizes the form.
• Side letter provisions: In a time where fundraising is still difficult, funds are finding that investors are pushing for more restrictive terms, which impacts the funds’ ability to include certain LPs in their borrowing base. Some funds are pushing back on the waiver of defenses – and some terms may be dealt with in the loan documentation. Counsel should be brought in early to look at side letters so they can advise as to whether there are issues in these side letters that would make the deal difficult to get a lender to accept.
• Regulatory environment: Additional regulatory scrutiny (especially in Europe), including with respect to Basel III, and as such more funds are looking into credit ratings. In this regard, there is concern relating to confidentiality and the requirement to share with rating agencies information that is subject to a confidentiality agreement(s). There are also concerns regarding capital adequacy requirements, continued checks on capitalization and additional reporting requirements for banks – regulatory requirements that are costly for banks. The costs will ultimately be factored into the spreads. The panelists expect to see some funds change domicile based on how the regulatory regime in the jurisdiction is viewed. For instance, Cayman vehicles are not accepted on a pass through basis so some domicile changes are expected. There are also concerns regarding regulation of Japanese, EU and Canadian banks and more general concern with respect to U.S. banks.
• Complexity of fund structure: The key terms that firms look at to determine if a deal is bankable are the quality of the LP, restrictions in the LPA, and the quality of the manager. Fund counsel should communicate to GP if a structure is complex and will be expensive in terms of legal costs, so that there are no misunderstandings.
• Relationship: Panelist noted that relationships are key. Many banks use subscription lines to establish/support client relationships. It is important for a fund to have relationships with its lenders and each fund should have a diversified list of lenders. This relationship is of the utmost importance and with strong relationships funds find that banks will reserve space on their balance sheet for the funds with which the banks have a strong relationship, at least in some circumstances. Funds should consider the overall strategy of their lenders with the opportunity for which it needs funding and recognize that the relationship allows funds to know their lenders.
  • GPs tend to borrow from banks where there is a treasury relationship and where there is certainty of execution, even if the pricing is higher.
• NAV facilities: GPs need to address issues in LPs to allow for NAV facilities. For example, in the standard LPA there may be limitations on leverage and on the term permitted for debt (e.g., 180-365 days). Some LPs challenge because they do not want long term debt. The purpose of the debt is relevant – it is usually OK with LPs if the NAV is entered into late in the phase of the fund to replace a subscription line when there is no longer any uncalled capital. Some LPs find NAV facilities problematic when using the NAV to bridge liquidity in lieu of a subscription line. LPs really want to understand leverage and the plan for repayment. Some LPs like the leverage because they may get a return and can redeploy capital, but others want to wrap things up.
• Ratings for subscription lines: This is not a one size fits all assessment. A determination should be made as to whether the cost is worth it. For example, it is not helpful in connection with SMAs or one-year facilities, but may be helpful in a syndicated facility. The rating adds a lot of cost and impacts the economics of the deal, so a cost efficiency analysis should be considered.

Syndication update

By Jim Lawlor

As with other panels, the syndication update had a past, present and future quality to it. Beginning with a review of agent bank and counsel responses to the regional bank failures in 2023, panelists on the commercial and legal sides recalled long days and nights, and one seemingly endless weekend (not of the variety one would wish for), of information gathering, client and customer outreach, deciphering of regulatory pronouncements and candid recognition that they had more questions than answers. Agents generally were hesitant to invoke defaulting lender provisions in their agreements due to regulatory resistance, while some funds pulled down their remaining commitments and others elected to request small test borrowings to ensure that funding would occur from all members of the bank group. Following that initial period, positions were sold by regulators and bank groups reconstituted. Borrowers sought, and agents generally supported, a migration of deposits from regional to larger banks, or in some cases a division of deposits among multiple institutions.

Lead lenders and funds now find themselves, and the market, in a different place. As one panelist noted, disruption inevitably leads to innovation. As renewals roll around, agents are seeing larger bank groups with smaller holds and new entrants to the market providing liquidity to offset reduced, or even withdrawn, positions due to regulatory restraints affecting larger lenders in the space. Market dynamics are still unfolding as new entrants, mainly regional banks, try to find the right fit for them in the market. Pricing challenges are leading to tighter flex provisions in term sheets. Tenors are short – no more three-year deals – and letter of credit sublimits are being reduced as LC banks are limiting fronting exposure. Some funds are opting for bilateral or club deals at lower initial availability, with an eye to increasing the facility and the lending group as the market settles. Utilization is the watchword as agents seek to circle their facilities, with higher fees designed to encourage rightsizing of facilities, or at least reward lenders who take on risk of under-utilization. GPs and agents alike emphasized that longstanding relationships help both sides manage through an environment where balancing liquidity supply and demand has become a challenge.

New entrants to the lending market – regional and foreign banks, private lenders and insurance companies – are projected to play a crucial role in the liquidity solution. While newer and smaller lenders are garnering scrutiny from lead lenders and LC banks, one panelist noted that the resilience of the industry and the strength of the fund products mitigate risks associated with larger syndicates welcoming newer lenders. And the candid recognition is that with demand likely to outpace supply, the bank universe will sort into the established larger players in capital management mode keeping their hand in but not increasing positions, while the newer entrants in growth mode will provide an increasing share of the funding, taking larger positions in syndicates and even offering bilateral alternatives. Panelists also foresee full or partial term-outs, more use of NAV, conduit participation vehicles, fund ratings and back-end securitizations as avenues to create liquidity to meet expected demand.

The rise of non-bank lenders in fund finance

By Chu Ting Ng

Having seen increased activity from non-bank lenders in the market, this session was particularly popular with conference attendees. The initial segment touched upon non-bank lenders and their primary focus on NAV lending, while the remainder of the session saw a general discussion on NAV lending as a broader topic.

It was noted that media attention on NAV lending had increased, with some mention of non-bank lenders. Panelists indicated that this might suggest increased activity (which Reed Smith has seen) and a continual upward trend, notwithstanding the fairly bespoke conditions and deal terms under which non-bank lenders operate and which they require.

Other items of note from the panel include:

• Keen discussion as to whether there will be rapid growth or whether non-bank lenders are by nature limited to a select pool of borrowers. For example, continuation funds may find this quite useful where there is greater proximity to the asset when considering security packages and pricing, but not necessarily borrowers, who have a broader portfolio.
• In relation to NAV financings generally (but in particular with non-bank lenders), there still remains a need to socialize LPs to these financings notwithstanding partnership agreements permitting NAV financings from the outset. This is particularly crucial in what remains a relatively fragile fund-raising environment, and reactions from investors remain mixed. The question of the extent of LP involvement or LPAC approval remains, and this is still being approached with sensitivity.
• Large contributor to increased NAV lending is that lenders (bank and non-bank alike) perceive this as a more liquid and moveable product, if structured soundly. It was pointed out that one or two significant exits may result in the entire loan being repaid, so if structuring and valuations are sound then the product is far less risky than it is being projected to be by the media.
• Noted by all that liquidity remains tight and recycling capital is increasingly important, so all parts of the fund finance market are working together to have the right components for sponsors to efficiently manage their portfolios. NAV financing is one of these components and sponsors continue to look to all types of lenders for varied options and pricing.
• Brief mention of rating agencies being involved to enable lenders to have some capital benefits from taking on rated products, but this is still generally confined to the subscription line space without specific reference to NAV lending.

Global market update: Perspectives from outside the U.S.

By Bronwen Jones

The fund finance landscape outside the U.S. is not homogeneous, with noticeable differences currently between different regions and even within regions – for example, China, Taiwan, Japan and India are all currently different markets for fund finance. The by-now well-known background macro fundraising environment – slow fundraising, slow exits, continuation funds and so on – is not necessarily as negative as it is sometimes portrayed. Investors are using this to evaluate the track record of sponsors, with a flight to quality based on strong performance from successive funds. However, this makes it particularly tough for first-time funds. Health care, tech, infra and credit funds are currently having the most fundraising success. Against this background, the panel were of the view that NAV and bespoke fund finance deals will continue to increase in popularity. The rise of private credit coming into deals as lenders seems to be happening on good terms with more traditional lenders, although there are challenges (and so naturally opportunities), and it was noted that there are very few alternative lenders active in Asia currently.

Post-regional banking crisis market update

By Cheryl Lagay

Overall, the mid-market is ripe for small regional banks. Pricing continues to be higher than the mid-market would like, however. Relationships with borrowers and lending to borrowers that maintain deposits with regional banks are important. Following the events of March 2023, there was a fear that there was no longer a place in the market for regional banks. Regional banks, however, are thriving and provide an important service for their customers. These banks are able to find creative solutions to meet the needs of the mid-market and provide differentiated services. These banks also have the capacity to “lean in” and support fund managers.

In terms of creative lending strategies, these banks have different approaches. For example, some of the banks have started to offer uncommitted lines so that there is no unused fee for borrowers – from a cost perspective this has worked well for clients. There seems to be a demand for uncommitted lines. However, other banks expressed an aversion to uncommitted lines because such lines require a sizeable infrastructure for each draw down and there is not a huge capital charge to commit capital. These banks prefer to have a committed line with an uncommitted accordion to provide flexibility for borrowers. Another lender commented that subscription lines will continue to be an important product offered. They meet the liquidity needs of funds and allow lenders to be strategic partners with their clients.

The trends that these banks identified are (i) high pricing; (ii) tighter covenants; and (iii) more focus on full relationships. These banks are also seeing new lenders enter this space, such as Axios, which was on the panel. These new entrants seem to be thriving. There are also non-bank lenders competing in this space. Real estate funds seem to be under more scrutiny than others. Also, LPs are demanding diversification of lenders. In the past, funds would keep each series of a fund at the same firm, but recently some funds have begun to diversify. On a macro level, it was reported that the expectation is that the Fed will cut rates several times by year end, resulting in a lower cost of cash. Accordingly, there is an expectation of continued growth in the mid-market.

Another trend is enhanced scrutiny by regulators. The regulators are not as interested in the credit function as much as the banks’ internal processes. The regulators are digging more than they have in this past. This scrutiny raises the cost of doing business for regional banks and makes it more difficult to compete with large banks.

NAV lending to buyout funds (fund-level, back-leverage, LBO)

By Mac Campbell

It was mentioned in passing (unverified) that 5-10% of buyout funds have NAV facilities in place. It appears that most LPs are generally on board with these facilities; however, there remain some concerns due to, in some instances, perceived transparency and misalignment issues (as highlighted by recent press, albeit potentially sensationalist). These issues are considered to be resolvable with (1) managers working with limited partners to, among other things, understand the benefits the facilities bring them and the relevant fund, as well as provide further transparency on any upsides to the manager, and (2) further guidance from associations supporting the investors such as the Institutional Limited Partners Association (which is currently working with firms, banks and investors to produce guidance). With NAV facilities being resilient and adopted more and more, there may be further guardrails contained within the LPAs of the relevant funds moving forward, as well as a harmonized taxonomy to allow better transparency. The panel also noted that:

• Sponsors in the upper mid-market and large cap space have been pushing security-lite structures, and this push is moving down to the mid-market (although perhaps without much traction).
• NAVs continue to be more prevalent in Europe than in the U.S.
• Some investors are also seeking to be NAV lenders (including in continuation situations), and this has led to other issues arising such as whether they are treated the same as other LPs and decision-making processes.
• Notwithstanding market volatility, options have increased for more dynamic and bespoke products.

Underwriting considerations in today’s market

By Chu Ting Ng

Following the pandemic, recent shifts in the fund finance market have resulted in lenders across the market re-evaluating their credit and risk considerations and strategies. This session was highly targeted, and attendees were largely from lending institutions.

The general consensus was that liquidity constraints remain and lenders, now more than ever, are scrutinizing the composition of their balance sheets while still facing internal pressures to reshape and refine their business. There was an overall theme of quality clients and maintenance of existing relationships rather than a focus on market presence and client portfolio growth (which was observed pre-pandemic).

Other key panel observations include:

• While maintaining client relationships remains a priority, there are still limitations on capital so there has been increased collaboration with sponsors to move toward lowering chunky holds and leading a syndicate instead. Another approach when de-risking is examining vintage lines and considering the benefit of extending these facilities further, particularly where there is fairly concentrated exposure to a single sponsor.
• From a sponsor perspective, there was an interesting example of lender groups disassembling across a number of umbrella facilities due to insufficient cross-selling to other bank products and other ancillary lines of business. The takeaway here was that sponsors should carefully consider the composition of each lending syndicate to ensure that they have solid connections and relationships with each lender, as a sudden lender exit is highly disruptive to fund operations and may also trigger a response from investors.
• Lenders are increasingly focused on the quality of LPs and are less likely to rely more heavily on a manager’s track record. Key factors include the prioritization of state-backed and institutional investors, the number of re-ups and the jurisdiction of these LPs. Overly concentrated investor bases and high net worth individuals are increasingly difficult (or simply not possible) to lend against.
• In relation to rated feeders, this is a welcome development as it lowers capital requirements and balance sheet constraints. There was discussion on the main features that a lender would prefer to see, one of which was a portfolio that generated steady cash flows to service interest repayments (which understandably may not be the case for certain asset classes and sectors). Other features include examining the distribution waterfall and in particular the treatment and management of excess cash, as sponsors who are willing to apply excess cash to amortize the debt early would be looked upon more favorably from a capital perspective.

Lessons learned from the regional banking crisis

By Jim Lawlor

In a riveting program that was more deeply personal than its name might suggest, panelists on the front lines of the regional banking crisis shared an inside view of their experience as events unfolded over the course of a few days in March 2023 and the ensuing weeks. In testimonies that were moving, and seemingly cathartic, a panel comprising bank and law firm leaders revealed not only the human toll of the crisis, but also the remarkable contributions made by individuals whose own lives had been turned upside down, from the leadership through to the rank and file, to preserve relationships, to smooth the transition of customer accounts and to support their co-workers. One banker noted that the experience hurt, and still hurts, but pointed with pride to the professionalism of his team, which worked 24/7 through the crisis, sans a CEO or a board, never missing a beat, until the portfolio was placed with new lenders. Another likened his presentation to being a Titanic survivor who needed to tell his story so others would more fully understand what happened. An attorney relayed being on the phone all weekend in a hotel room in Paris while family members enjoyed their planned vacation. Another law firm assembled a response team of regulatory, fund formation and fund finance attorneys on a Friday evening to respond to client calls throughout the ensuing weekend.

Beyond these personal aspects, the common theme emerging from the panel was that facts were shifting so quickly, and information was so inconsistent, that all parties – at the outset at least – shared an overwhelming sense of uncertainty. It became clear that the regulatory response would not necessarily follow the pattern of the 2008 crash or even the long-ago S&L crisis. The legal issues were at once daunting and mystifying. So, leaders at banks and law firms largely relied on their human skill sets as much as, if not more than, their professional experience and training. They showed up for their colleagues, clients and customers. They listened. They asked after the wellbeing of family members. They were honest when they did not have answers to countless urgent questions. They gathered, digested and disseminated whatever reliable information they could find. And when a plan emerged that gave direction, they faithfully saw it through. They cooperated with regulators, providing guidance and assistance to help those accustomed to more traditional commercial loan portfolios understand the unique attributes of subscription line structures. In the end they found new professional homes for their teams, effectively seeding a new crop of market participants. The consensus of the panel was that, however unpleasant the process, the system worked. They and the industry survived. While much has changed, the fundamental equation of a quality product paired with quality service equaling a thriving industry remains the same.

Yes, there were the lessons learned that were consistent with presentations at other panels. Diversification of deposit accounts, tightening of assignment provisions, enhanced diligence on syndicate banks, greater awareness of regulatory regimens, enhanced risk management and planning for the worst case were all noted. For this panel in particular though, the chief lesson was that the regional banking crisis was also a human crisis in need of a human response. And, in an industry where people look after one another and relationships matter, it was the human response taking place on the inside that preceded and contextualized the professional response we all witnessed from the outside.

NAV lending to credit funds: A new frontier

By Linn Mayhew

The panel discussed the emergence of NAV lending as a financing tool for credit funds, contrasting it with the more established practice of NAV lending to private equity funds. While NAV loans in private equity often address specific liquidity needs or unique situations, their application in credit funds represents an additional complementary tool for optimizing returns and enhancing IRR. Notably, credit funds typically have inherent cash flow from their underlying assets, making them more suited to revolving NAV facilities that support ongoing investment activities. The panelists emphasized the key differences in risk assessment between NAV lending to credit funds and NAV lending to private equity funds. In lending to credit funds, the focus lies on the portfolio’s overall performance and the manager’s track record in navigating market cycles. While collateral remains important, the emphasis shifts from individual asset pledges to ensuring seniority and clarity of rights amidst potentially complex leverage structures.

The differences between bank lenders and non-bank lenders in the NAV space were also discussed. Bank lenders in the NAV space prioritize security for regulatory capital treatment, while non-bank lenders, including insurance companies and asset managers, offer alternative financing options with potentially higher yields or advance rates. Bank lenders can also provide back-levered facilities to non-bank lenders, enabling them to provide NAV facilities to credit funds. This typically allows non-bank lenders to increase their returns and participate in larger transactions.

Ultimately, the panel concluded that the evolving NAV lending market for credit funds presents a complementary option that can be used in conjunction with traditional financing options (such as ABLs, subscription lines, recourse financings and margin loans), offering enhanced flexibility and performance optimization for credit fund managers.

Secondaries and continuation fund market update

By Chris Davis

• Roughly 55% of secondary fund transactions are LP led, while remainder are GP led.
• The product has been around for decades, but saw a large increase in interest in 2008 after the global financial crisis.
• LP representative on the panel pointed out that GPs have many tools available for liquidity (GP-led secondaries, NAV, preferred), and was not a big fan of NAV as it adds complexity to the process if you’re an LP.
• There appear to be more articles and talk about NAV deals than actual deals closing.
• LP representative pointed out that they are in a partnership with the GP and appreciate knowing what’s going on with a fund, even if not technically required.
• There should be more of a blueprint of best practices for sponsors while doing these deals.
• A positive is that there is no blind pool risk, and you know exactly what you’re investing in.
• Investors want input over whether there is borrowing at the continuation fund level and visibility into the terms.
• Deferred purchase mechanisms, where the full purchase price is not paid up front, are becoming the norm.
• Participant noted that he is seeing roughly 60% multi-asset deals, 40% single.
• Banker pointed out that the most important aspect for them in evaluating a deal is the asset. They also want to know if the investors and GP are aligned and whether the investors have skin in the game via funding.
• The outlook for the rest of 2024 appears strong, as there is a fair amount of dry powder present in the market.

Private credit panel

By Linn Mayhew

The panel opened by discussing the evolution of private credit across the market, particularly focusing on the past five to 10 years and the current environment.

Compared to the pre-global financial crisis era, when private credit was a niche product for smaller companies with limited financing options, the market has seen explosive growth, fueled by the retreat of banks and the influx of private capital seeking attractive, risk-adjusted returns. This has allowed private credit lenders to compete directly with banks in the upper mid-market, offering larger and more complex financing solutions, including unitranche loans and bespoke structures tailored to specific investor needs. Notably, the industry has also seen a shift in the investor base, with retail investors increasingly seeking access to private credit opportunities.

Despite the overall growth, the current macroeconomic environment presents challenges, particularly in terms of liquidity constraints on bank lenders due to regulatory capital requirements and market volatility. This has led to a more competitive landscape and a focus on managing concentration risk and ensuring efficient use of balance sheets. However, the market is responding with innovative solutions, such as the introduction of ratings for subscription facilities and increased participation from non-bank lenders and institutional capital. Additionally, sponsors are exploring alternative liquidity options, like NAV facilities and preferred equity, to meet their financing needs and provide liquidity to investors in a challenging environment.

The panel also discussed how financial covenants have changed across the lower mid-market, mid-market and upper mid-market, the development of covenant-lite structures, the impact of “higher for longer” and the increase in leverage across all fund sectors.

In summary, it is apparent that the private credit market is dynamic and constantly evolving. While challenges exist, the market continues to innovate and adapt, offering a range of financing solutions to meet the needs of sponsors and investors.

Capital relief trades

By Bronwen Jones

All regulated banks have capital management requirements, and most people are familiar with the balance required by regulators between Tier 1 capital and risk weighted assets (RWAs). This balance can either be managed by increasing Tier 1 capital (issuing shares) or reducing RWAs. Credit risk transfers (CRTs) are a way in which banks can reduce their RWAs. CRTs are fairly well established in Europe, but are a more recent and growing practice in the U.S. This is a result of the regulations in Europe and the U.S. not always having been in step. Ultimately, for banks, capital is a precious commodity, and CRTs offer banks the ability to manage that commodity more efficiently. The so-called “Basel 3 endgame,” which requires banks with more than $100 billion of AUM to use both a standardized approach and an expanded approach, means capital for these large banks is even more expensive. One way of achieving a CRT is to use a “synthetic securitization” falling within U.S. Reg. Q. This method has the potential to reduce the risk weighting for a pool of loans from 100% to 20%, so clearly there is a lot of interest in this at the moment. A synthetic securitization requires the transfer of credit risk related to a pool of assets and at least two tranches in the structure – although it is common to have more tranches to appeal to a wider range of investors. They can be structured in various ways, but one common structure, recently confirmed by the U.S. regulator, is for a special purpose vehicle (SPV) to issue credit linked notes (CLNs). Applied to a pool of subscription line loans, the structure will include eligibility criteria and a replenishment feature. This latter is necessary because subscription line loans are normally revolving loans while securitization notes are term loans. There have also been instances recently of directly issued CLNs, but each issue tends to need regulatory approval, unlike SPV-issued CLNs.

Rated note feeders and collateralized fund obligations

By Mac Campbell

Rated note feeders and collateralized fund obligations are innovative structures which have formed to assist investing in funds by entities hamstrung by regulatory requirements for capital allocation, specifically insurance companies. This is largely a U.S. product that has been evolving under the watchful eye of the National Association of Insurance Commissioners (NAIC), which has been setting the regulatory framework for investment in funds by insurance companies. Put simply, rated note feeders are generally for investments into a single fund, while collateralized fund obligations are geared toward investing across multiple funds rather than, as was historically the case, credit funds (given the regulatory capital treatment requirements). There has been movement in the regulatory landscape, notably the NAIC is indicating changes as to:

• What is considered to be a bond for regulatory capital purposes, which will be determined using a “principle based approach,” giving interested parties more comfort.
• The appropriate capital charge for equity investments (30% historically, with asset backed structures now looking at 45%).
• Its ability to challenge ratings (which is causing some concern).

The panel also noted that:

• The market continues to develop more and more innovative structures, including tranching the equity components, and while largely a U.S. product, there have been structures set up in Japan, Korea and other places in the world.
• More borrowing base lenders are getting comfortable with investors through rated note feeders being counted toward the borrowing base, although it is important that all interested parties are aligned on this early on and all substantive documents are also aligned.

Securitization and ratings in fund finance

By Jim Lawlor

The securitization and ratings panel noted that, after several years of discussions about ratings being utilized in the fund finance market, the past 12 months have seen an uptick in private ratings (loosely attributed in part to seeds planted at this same session a year ago). In an industry where demand for liquidity is unabated, and it seems 99% of lending positions are held by banks and private lenders, a capital markets solution seems inevitable. Ratings are an absolute prerequisite for market access. While there are a few public ratings, most are private. Term tranches of NAV facilities have been rated, but the challenge the industry faces is how to best utilize ratings to create liquidity in the subscription line space. One fund represented on the panel has had success selling rated term tranches of GP and management company positions, given the reliability and regularity of cash flow in those products. For subscription line portfolios however, challenges remain. The large number of bilateral facilities and lack of documentation uniformity across portfolios, or even within a single portfolio, make ratings difficult. The need for transparency in rated and traded products meets resistance from GPs who are guarded about certain information, most notably their investor lists. Annual clean-down requirements in many subscription facilities are barriers to creating a term tranche of meaningful duration. Still, rating agencies report that demand for subscription line ratings is up, and their criteria are much more developed than even a year ago. In non-U.S. jurisdictions, securitizations are another avenue, also requiring a rating, for banks to generate both new liquidity and regulatory capital relief. Though obstacles remain, a sense of inevitability is emerging among the panelists that rated structures will be a win-win for the market as it continues to mature, providing a much-needed liquidity source for funds, as well as competition for new entrants to the lending market, which will ultimately benefit funds, and creating new distribution opportunities for the capital market side of the large lead banks.

Artificial intelligence panel

By Bronwen Jones

To start the session, the panel put forward a definition of “AI” as a non-biological intelligent system. The likely benefits for business of adopting AI are increases in productivity and innovation. It could help the underlying operating businesses of a PE fund with things like the efficiency of supply chains, pricing strategies and elements of deal flows like due diligence. A good example of the use of AI is the Amazon supply chain. At the heart of this is AI-driven, large-scale forecasting of likely customer demands, enabling Amazon to order products weeks in advance, meaning that last minute supply chain issues do not interfere with its “next day delivery” promise. The progress of AI is exponential, and the panel message, in short, was doing nothing about AI will leave you at a disadvantage against your competitors. At the moment, the gap in knowledge between those who understand what AI might do for them and those who do not is fairly small. This gap will only widen and at a certain point it will no longer be possible to bridge it. The panel agreed that as part of the AI adoption process for any business, there needs to be feedback built in to assess and improve how the AI is working for that business. That feedback loop should always involve human feedback, for both performance and safety reasons.