Fund Finance Association 1st Asia-Pacific Fund Finance Symposium What did we learn

Ashurst were proud to sponsor the 1st Asia-Pacific Fund Finance Symposium which was organised by the Fund Finance Association (FFA) and hosted in Hong Kong on 19 June. Continuing its association with the FFA following previous successful events in New York and London, a team of partners and senior lawyers from London, Hong Kong and Sydney including Nick Wong, Kenneth Tang and Dean Moroz attended the conference whilst Lee Doyle, Global Co-Head of Bank Industry, participated in the panel sessions. 

Turnout for the conference was strong, with banks, law firms and sponsors from across the region (and beyond) attending in force. Discussions on the panel and in the networking sessions made it clear that market participants see a bright future for fund financing in Asia. This seems almost inevitable since investors and sponsors continue to look for higher yielding opportunities and, although currently much smaller than the European and North American markets, Asia possesses greater growth potential than its more mature cousins. Asian Development Bank estimates a US$26tn shortfall in necessary infrastructure spending up to 2030 whilst Prequin saw around US$110bn of dry powder targeted for investment in private equity (as at Q3 2016).*

Key takeaways

• Growth  – Asia-Pacific fundraisings have seen robust performance both in terms of the number of funds and the quantum raised over the past five years. Prequin estimates that since 2011, average fund sizes in Asia have increased by 23% to US$320m in 2016, with fund raisings in H1 2017 dominated by private equity funds (82%). To date, less than 50 per cent. of Asian funds implemented a subscription facility at the outset so there is scope for further growth.
• Activity – Together with significant private equity activity, infrastructure funds and venture capital (particularly across China and India) have also seen strong dealflow. In 2016, over 700 infrastructure investments and 400 venture capital investments took place in China alone.
• Performance – Average IRR for Asian funds hit a high of 15.7% in 2010 and whilst performance has levelled off slightly, IRR for Asian funds exceeds the average IRR of European funds and only marginally lags the IRR of North American funds.
• Structural Diversity – Fund financing transactions in Asia are still undergoing a period of normalization. Most fund structures utilise Cayman or, to a lesser extent, Singaporean vehicles. The majority of credit agreements are governed by English law or New York law although other jurisdictions have been known to feature. Most financings have taken the form of subscription facilities although asset-backed/NAV facilities are not uncommon and there is significant interest in hybrid structures.
• Market Practice – There has been a gradual alignment of terms in Asia-Pacific facilities to those in European and North American facilities, with a general shift from unsecured facilities to secured facilities benefiting from the more typical package of an assignment of call rights and account security.
• Risks – The impact that China's capital controls could have on the ability of Chinese investors to meet capital calls is a potential risk factor. None of the panels had encountered any practical examples of capital controls creating a problem so, for the moment, this remains a theoretical risk.

Planning for the 2nd Asia-Pacific Fund Finance Symposium is already underway. Given the strong past performance by Asian funds and the high levels of investment being made in Asia-Pacific by market participants, all signs suggest that the next conference will be an even greater success.

*All data based on figures presented by Prequin at the Fund Finance Association 1st Asia-Pacific Fund Finance Symposium