Fund finance – the solution to the liquidity needs of private equity

By nyppex
On 28 Jun., 2021

Since 1998, NYPPEX is a global securities firm specializing in secondary private market advisory, trading, credit facilities, principal investments, and information about some of the popular mutual and equity funds.

Fund finance – the solution to the liquidity needs of private equity

The Covid-19 pandemic has caused an immense crisis in the private equity, infrastructure, logistics, and real estate funds. Fund managers have to make use of credit facilities to manage the problem of cash flow. A lot of investors have withdrawn their entire capital while several sponsors have stopped all credit facilities. In fact, several of them had to apply for financial help from government schemes.

The continuing effect of this crisis is that cash flow availability is at an all-time low for several companies, and it is difficult for them to increase their capital further from new investors. Additionally, the decrease in the valuation of several investments has also forced several companies to file for liquidation. Hence, fund financing is a major problem now, and in this article, you will learn about some possible solutions to get out of this mess.

What is fund finance?

Fund finance had developed as a way to assist the administration of capital and deploy funds efficiently to fulfill commitments to the investors. All private equities will have a system for the company to invest in certain funds at short notice to help make more profits. The pandemic has severely affected this system, and maintaining a stable fund financing system is difficult now.

What can be done to rectify this?

There are some ways to get around the problem of fund financing.

Traditionally, the fund comes from investors through monthly or one-time investments. The money is then invested in the market in specific companies and shares. The investor gets assured returns and profits from this at a more or less steady rate. Now, companies are looking to provide more long-term bonds with specific clauses of lock-in periods for a number of years before investors can start to receive their returns. The rate of returns is markedly higher than the previous. The idea here is that companies will not provide returns in the short term because they need the revenue themselves to stay afloat and continue functioning.

Another strategy that some companies are using is to offer their shares at lower prices so that more and more people can buy them. This helps increase their funds from multiple sources while also reducing the investor's fears of incurring significant losses. To learn more about this issue, you should visit nyppex.com.

Conclusion

As markets fluctuate, companies continue to innovate so that they can finance their funds and keep their equities alive.

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