One year on from the collapse of Silicon Valley Bank – what has been its impact on the fund finance market?

OakNorth has been doing fund finance since 2018. However, 2023 saw us significantly ramp up our activity in this space, due to the collapse of Silicon Valley Bank in March and the void that left. With the anniversary approaching, I wanted to reflect on OakNorth’s years in this space, and the impact the collapse has had on the fund finance market.

A catalyst for change

The collapse came as a surprise to many - a lot of funds up until that point, had relied on just one financier. Suddenly, they were in need of a new banking partner, and many fund CFOs didn’t know where to turn, or which banks are / aren’t active in this space.?The collapse of Silicon Valley Bank forced them to begin shopping around and looking beyond just a handful of lenders.

While OakNorth is still fairly new to the fund finance market, we’ve managed to carve ourselves a niche, providing optionality for funds seeking lower debt quantum from ￡3m up to ￡75m, but from a financier who can offer the full spectrum of products – capital call, GP lines, liquidity lines, and NAV facilities.?In 2021 for example, I led OakNorth’s first ever fund buy-out deal, providing financing to FORE Partnership, the purpose-driven, transformational real estate investment firm which is active in the UK and Western Europe.?The capital was used to support the buy-out of Edmond de Rothschild Real Estate Investment Management’s 32% minority interest in the business. It also provided FORE with increased independence and agility to navigate the uncertain market conditions, and pursue its signature approach to real estate investment.?

I also led the bank’s first ever subscription facility. The facility was provided to Bluegem Capital Partners, a private equity firm focused on European consumer-facing businesses, whose key investors include Glendower Capital, Strategic Partners (Blackstone’s Secondaries Division), BMO Global Asset Management (BMO) and Bluegem GP.?

So, when Silicon Valley Bank collapsed, we reassured the market that our doors remain open for business and that we are willing to support the industry and sector, having productive discussions with numerous fund CFOs on what their optionality was.

An underserved and underrepresented market

There is still a very large part of the market which is underserved and underrepresented – especially for smaller loans between ￡10m-￡35m, and GP lines between ￡3m-￡10m. OakNorth is helping to fill this gap which has only widened with the collapse of Silicon Valley Bank.??We’re not a volume player – we want to find the right deals and structure them accordingly, working in partnership with the fund.?

In 2023, we did a handful of GP line deals with modest amounts of a few million pounds, but though small, these were very important for the funds as the GPs needed that commitment. There are very few lenders a fund can approach for modest amounts like this, and a lot of lenders will insist on tying it up with another product. For example, they'll only look at the GP line if they can look at the capital call too, whereas we keep everything separate. This makes things much simpler for the CFO and the fund, and as we saw with Silicon Valley Bank, helps CFOs with their risk management as they're not relying on one financier for everything.

Just in case vs just in time

Smaller funds with ￡50m-￡250m of assets have become much more open to debt in the last 12 months because they can see the advantages of having a facility in place just in case they need it.

For example, I led on a capital call line with Paloma Capital, and completed the transaction in just six working days. This speed was vital to Paloma as they were raising a new fund and were seeing opportunities that they wanted to execute on. Jack Pitman, Founding Partner of Paloma, said: “We are delighted with the effort OakNorth has made to understand our requirements and their willingness to design a package that was tailored to our specific needs. They have been very responsive throughout and managed to document the transaction within a week of receiving credit approval, which was exceptionally quick and exactly what we needed. The OakNorth facility means we can draw down up to ￡45m on only 48 hours notice, which is great if opportunities come up to buy assets quickly. It also allows us to bridge the gap between completion and the drawdown of senior debt at a later stage.”??

Playing our part

Looking back over our last few years in this space, I’m proud of what we’ve achieved. We’ve helped the market provide liquidity when others have withdrawn; we’ve helped educate the market with regard to shopping around when it needed to; and we’ve helped the market innovate in terms of deal structuring and pricing. The last 12 months has seen pricing in the market begin to correct itself, pricing for the product as opposed to the cross-subsidisation we’ve seen previously.

When we started this in this space, we weren’t sure how the market would take to us, but the fact that we’re able to look at things with a fresh pair of eyes, without preconceived notions, and have an appreciation that every fund is different, means we’ve been able to have a really positive impact in a fairly short space of time. We look forward to continuing to support the fund finance space in the months and years ahead.