Growth in European Fund Finance: A Channel Islands perspective

Demand

Access to liquidity was a central theme of 2024 in the European fund finance market. Whilst macro-economic factors suppressed demand for subscription lines, alternatives such as NAV, GP and back-leverage facilities kept many of us occupied throughout the year. Such products, underpinned by continued liquidity demand from fund managers, drove growth in innovation and sustained the importance of fund finance across the global loan market.

Innovation

NAV facilities

Across Guernsey and Jersey, NAV facilities in particular have driven a steady flow of instructions across the last 12 months. This has been fuelled in part by demand from European fund managers to deliver liquidity to investors, enabling investors to re-deploy capital, and in turn enabling fund managers to evolve their product offering through new funds, strategies and geographies. Against the backdrop of a slower market for M&A and realisations generally, we have seen liquidity generated by various NAV financings where the underlying asset pool is held via a Guernsey and/or Jersey holding structure. Such structures are common, leveraging the multiple and well-known benefits Guernsey and Jersey offer, including tax neutrality, capital maintenance flexibility and local market sophistication in the international finance industry.

The prevalence of Guernsey and Jersey vehicles not just at fund level but within many downstream asset holding structures is likely to continue to drive growth in fund finance activity in the Channel Islands. This is particularly the case for NAV facilities, which – whilst they have gained a certain amount of public and press attention recently – are generally accepted to form a relatively small portion of the fund finance market at present. Growth in NAV facilities may drive further evolution of the product, including more widely available information about their purpose, role and use cases. Guernsey and Jersey stand to benefit accordingly.

Other options

Beyond NAV facilities, GP, back-leverage and exit bridge financings provide examples of further innovation in the fund finance market. We have also been involved in – or had discussions about – subscription line facilities forming tranches of SRT/CRT programmes (which, in very general terms, enhance traditional lender liquidity whilst offsetting risk). These are all examples of how the fund finance market continues to evolve, with Guernsey and Jersey well placed to offer solutions to those implementing new structures and product offerings.

The statistics

The demand for fund finance products involving Guernsey and Jersey vehicles is supported by data collected by local regulators. According to the Jersey Financial Services Commission, the total net asset value of Jersey funds as at the end of the second quarter of 2024 was £457.6 billion, representing an increase over the quarter of £5.7 billion (+1.27%) or over the past year of £17.6 billion (+3.99%), with over 620 regulated funds and around 1,953 separate asset pools. Guernsey follows a similar trend; the Guernsey Financial Services Commission reported the total net asset value of Guernsey funds at the end of the third quarter of 2024 was £288.8 billion (of which £238.8 billion sit in closed-ended schemes).

These statistics evidence the high international standing Guernsey and Jersey are held in in the investment fund industry, and the importance of Guernsey and Jersey to the European fund finance market.

Fund structures

Overview

Jersey and Guernsey are major international financial hubs and specialist global centres for fund structures, most widely used by sponsors to raise capital from European investors and for global investments into Europe. Asset classes are broad, and span amongst others private equity, real estate, credit, infrastructure and venture capital.

Part of the appeal stems from the range of traditional and innovative fund structures on offer, which can be tailored to investor requirements. These include authorised funds, registered funds and private investment funds in Guernsey and private funds, eligible investor funds, collective investment funds, listed funds and expert funds in Jersey, which can be open-ended or closed-ended.

Vehicles

Guernsey and Jersey also offer a range of vehicles which can again be selected based on investor requirements, such as limited partnerships, unit trusts, limited liability companies, protected cell companies and incorporated cell companies. The volume of products on offer, with different levels of regulatory oversight, offer fund sponsors flexibility, global access, and speed to market, which ensures Guernsey and Jersey remain a leading choice for fund sponsors.

Leading international finance centres

Further enhancing Guernsey and Jersey's status in the fund finance market, the Channel Islands are underpinned by stable political environments, a service industry of premium quality administrators and advisers, and reliable independent legal systems. Importantly, in both Guernsey and Jersey, the local regulator regularly consults with industry giving market participants an opportunity to ensure the regulatory landscape is and remains competitive and meets the commercial needs of the market.

Looking ahead

As noted above, we expect the innovation in fund finance product offerings to continue, and for Guernsey and Jersey's attractiveness for fund and downstream asset holding structures to continue to drive growth in the Channel Islands fund finance market. In addition, as new products evolve we expect transparency and industry knowledge will grow, which may in turn drive increased adoption of fund finance products – no more so than in the case of NAV facilities.

Beyond Europe, we are seeing a trend of increased enquiries driven by US fund managers. Many of those enquiries are focused on fund structuring for the purposes of accessing European capital or deploying capital in Europe, but a good number extend to fund finance products. If that trend continues – and the evidence suggests it will – we expect this will also drive growth across the Channel Islands fund finance market.

Innovation, liquidity demands and the rapid expansion of market participants gives plenty of cause for optimism in the Channel Islands fund finance market as we kick off 2025. No more so than the entrance and maturity of alternative sources of lending, and the ability of the fund finance market to find creative solutions to liquidity notwithstanding the macro-economic backdrop.

We continue to work at the forefront of the fund finance market, working closely with leading financial institutions, investment managers, banks and non-bank lenders. Our extensive experience and knowledge spans all product lines including subscription line facilities, umbrella facilities, NAV / hybrid facilities, preferred equity, co-invest facilities, general partner / management line support facilities, secondary fund facilities, liquidity and margin facilities and hedge fund facilities. If you would like to find out more or how Walkers can assist, please contact any member of our Channel Islands fund finance team listed below.