Updated 2025

As part of the evolution of the fund finance market, some lenders seeking a competitive advantage have expanded their product offerings to private equity and other similar funds (a “Fund”) from traditional capital call facilities¹ made to closed-end Funds to other financing products, including lines of credit to open-ended Funds or separate-account vehicles and net asset value facilities.² Another product that has gained traction in the market with some Fund sponsors (a “Sponsor”) is a so-called management fee credit facility (a “Facility”). A Facility is a loan made by a bank or other financial institution (a “Lender”) to the general partner (the “General Partner”) of the Fund or a Sponsor-affiliated management company or investment advisor (collectively, the “Management Company”) of a Fund, and has a collateral package that is distinct from other types of security arrangements commonly associated with Fund Financings.

While some Facilities include an all-assets pledge, the core collateral package for a Facility consists of the General Partner’s or Management Company’s, as applicable, right to receive management fees (“Management Fees”) under the Fund’s limited partnership agreement (the “Partnership Agreement”) or other applicable management or investment advisory agreement (the “Management Agreement”), and rights related thereto, together with a pledge over the deposit account into which the Management Fees are paid (the “Collateral Account”). A control agreement among the General Partner or Management Company, the Lender and the depository bank would be needed to perfect the Lender’s security interest in the Collateral Account. Additionally, since the General Partner, the Management Company or another Sponsor-affiliated entity (a “Special Limited Partner”) generally has an equity investment in the Fund, the security for a Facility may also include a pledge by such entity or other Sponsor-affiliated investing entity’s right to receive distributions from the Fund and, in some instances,...