Crestline approaches final close of Portfolio Financing Fund

The fund will provide bespoke financing solutions to private equity funds with various liquidity needs. These underlying funds will typically be mature private equity funds that are in carry, but have tapped original commitments and require additional capital to enhance the value of remaining portfolio companies or provide liquidity to LPs. Borrowers may also include younger funds, and those currently fundraising who need to borrow to finance acquisitions.

The opportunity set for portfolio financing has arisen from the record amount of capital raised before the financial crisis. Holding periods for assets acquired pre-crisis were extended, and many remain unrealised in funds approaching the end of their term. Portfolio financing offers GPs the opportunity to release capital to their LPs while continuing to benefit from additional upside from holdings. 

The fund will have a six-year term with two one-year extension periods, and the investment period will last three years from final close. Recycling of capital is allowed during the investment period, allowing the GP to take advantage of shorter-term opportunities.

Investors in the fund will pay a management fee of 1.25%, and carried interest of 12.5% above a 7% hurdle, according to documents obtained by unquote".

Crestline has operated a fund liquidity team since 2016, completing seven portfolio financing transactions, four of which are core to the fund's strategy. These four transactions have a committed value of $146.4m, and range in expected contractual gross IRR from 13.5% to 15.3%, according to the documents. 

A spokesperson for Crestline declined to comment.

LPs in the fund are yet to be disclosed, but Californian pension fund San Bernardino County Employees Retirement Association was considering a $50m commitment to the fund at the 16 January meeting of its investment committee.

Investments will be structured as loans to the fund or to specific portfolio companies, but can also be structured as preferred equity stakes in the fund.

Capital provided by Crestline is typically with a loan-to-value ratio of less than 30%, and is structured with covenants and cross-collateralised with assets in the borrowing fund.

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