Worldwide: Asia-Pacific Fund Finance Market Update

On June 19, 2017, the Fund Finance Association (the "FFA") hosted the inaugural Asia-Pacific Fund Finance Symposium at the Four Seasons Hotel in Hong Kong (the "Conference").  Twenty different market participants sponsored the Conference and 247 people attended, including an impressive turn out from private equity fund sponsor ("Sponsors") personnel.  There were multiple panel sessions, covering topics including private equity fund (each, a "Fund") formation, subscription credit facility transaction structures ("Facilities") and forecasts for future market developments.  This article provides a market update of the Asia-Pacific Fund Finance market based on the sentiments expressed at the Conference and our recent practice experiences.

Fund Formation

I.     Defining The Asia-Pacific Market. Defining the Asia-Pacific Fund Formation and Fund Finance Markets has certain gray areas at the margins.  There is a continuum, one side of which is Asia-based Sponsors raising a Fund from Asia-based investors ("Investors") to make investments ("Investments") in Asia.  On the other side, there are United States and European-based Sponsors raising money globally with an Asian Investment component to a global Investment focus.  And there is of course a lot in between.  Additionally, in certain respects, Australia functions as a sub market, with certain distinct characteristics.  Conference panelists for the most part were not concerned with precise parameters, rather just acknowledging the various Asian touch points and acknowledging differences where applicable.  We follow suit here.

II.    Investor Fundraising. Ling Yan Teo, Manager – Asian Fund Managers, at Preqin, opened the Conference with a data presentation derived from her firm's extensive research into private capital in the region.1 While private equity fundraising was somewhat muted the past few years, 2017 is off to a very robust start.  Preqin data shows over $36 billion raised to date in 2017 (already surpassing all of 2016) with an Asia-Pacific Investment focus, a full 11% of global capital raised.  Average Fund size has been increasing significantly in the region since 2015 as well.  Interestingly, buyout and venture capital Funds account for 80% of the Fund formation year to date, with real estate a very distant second.  Infrastructure is another asset class experiencing growth in the region, heavily weighted toward China and India.  But private debt and secondary Funds, while growing prolifically the last few years on a global basis, are surprisingly underrepresented in the region (perhaps signaling opportunity).

Panelists from the various Sponsors at the Conference anecdotally reported a very robust fundraising environment.  Their viewpoints likely contain significant inherent bias – virtually all of the Sponsor panelists were from preeminent, global Sponsors with long track records of successful fundraising and investing.  Many of the local advisors give a more muted outlook, noting that fundraising has been and remains challenging for many Sponsors in the region.

III.  Asia-Pacific Fund Structures. Funds formed by Asia-based Sponsors have traditionally used Cayman Islands vehicles as their preferred entity and that is largely holding true today.  Certain Sponsors have introduced Singapore and Hong Kong vehicles, primarily for local Investors.  Certain global Sponsors have increasingly been trying Luxembourg.  But the Caymans remains the most prominent jurisdiction.  The Australian sub-market often uses an Australian Unit Trust, sometimes for larger Funds in parallel with Delaware and Cayman vehicles.  While the Australian Unit Trust is somewhat unfamiliar outside of Australia, if documented correctly, it is a perfectly viable vehicle for a Facility according to Australian practitioners.  Fund structures are typically co mingled and closed end.  Separately managed accounts are yet to take hold in Asia the same way they have in the United States.

IV.   Investors. While Asian-based Investors have increased over time and are expected to increase further, they are still a disproportionately small percentage of the aggregate Investors in Asia-focused Funds.  Many Asian Investors have well-developed direct investing capabilities in the region, thus reducing their need for local Sponsors.  Sovereign wealth fund Investors are frequent Investors in Asian Funds, often in a flagship capacity.  Having sovereign wealth fund Investors in a lead capacity creates a plethora of challenges for Facility lenders ("Lenders"), from sovereign immunity and aggregate country exposure to concentration excesses and a lack of Investor financial information.  These Investors are increasingly investing in Funds via special purpose vehicles, yet are from time to time less than cooperative with respect to comfort letters and financial statements.

Fund Finance Market

I.     Historically. Historically, the Asia-Pacific Fund Finance market was quite bifurcated.  There were a relative few large, syndicated United States-style borrowing base transactions, predominantly for the Asia-focused Funds of global Sponsors.  And then there was a larger number of smaller, bilateral, bespoke transactions, customized to suit the particular Fund.  These transactions were often structured with a coverage ratio covenant but no individual Investor underwriting, and were often unsecured.  This bifurcation existed meaningfully even three years ago (and in certain sub-markets still exists today).  But the Asia-Pacific market has grown significantly the past few years and a lot of evolution has occurred.

II.    Today's Market. With the growth in recent years, panelists estimated the Asia-Pacific Fund Finance market to now be approximately $30-$50 billion, based on Lender commitments.  Virtually every global Sponsor's Asian Funds utilize a Facility.  Structures have "converged to the mean," a common description during the Conference of the market trend whereby Facility structures are increasingly the same across the United States, Europe and greater Asia.  This is driven by two primary factors:  First, for a global bank with a centralized Facility product offering, it is very challenging to maintain different structural policies based solely on geography.  Second, as Fund sizes have increased, Facilities often now need to be larger and require multiple Lenders to consummate.  This tends to lead to Facility structures the lead Lender is confident can be syndicated.  As a result, nearly all deals in Asia are now done on a secured basis, and a far greater percentage utilize an "Included Investor/Designated Investor"-style borrowing base.  Deals tend to be documented under British or United States law, with some truly local deals being consummated under Hong Kong and Australian law.  Hybrid Facilities and NAV-based lending are still in their early stages in Asia, with very few consummated transactions discussed at the Conference.  But Sponsors are inquiring.  The Asian market may be a little more relationship-based as compared to the price and structural sensitivities that are more prevalent in other markets.  Interestingly, there are new Lenders seeking to enter the market, often having to compete on structure and terms.  These new entrants can create a balancing act for Sponsors:  accepting the execution risk that comes with an unproven Lender with the structural and pricing accommodations that such Lenders may be willing to provide.

III.  Negative Press. While certainly not limited to the Asia-Pacific region, the recent press articles showcasing the Facility product in a somewhat misleading and inflammatory way were discussed at length at the Conference.  While the articles have certainly kept Lenders on the phone answering questions from their seniors and risk colleagues, no panelist reported any actual impact of the press coverage on their daily businesses.  There seemed to be a relatively widespread acceptance that sensationalized headlines drive clicks to web links, but as long as Sponsors engage in appropriate disclosure and transparency with Investors as to the intended use of both the Facility and any traditional leverage contemplated in the Fund's business plan, negative press coverage will not be an issue.

IV.   Market Challenges. Panelists identified several challenges that are more pronounced in the Asia-Pacific market, primarily turning on the greater number of currencies in which Investments need to be consummated.  Because Investor capital commitments are almost always in U.S. dollars, currency conversions and foreign exchange exposure is heightened.  Sponsors struggle to find hedging strategies that perfectly mitigate currency risk.  Additionally, even setting up banking relationships for all the applicable currencies can become an operational burden.  On the Lender side, underwriting standards have been increasingly challenged by Investors (particularly sovereigns) negotiating confidentiality provisions in their side letters that prohibit disclosure of their identity to Lenders.  While this certainly creates a credit challenge for Lenders, in certain cases it can cause 'know your customer' compliance problems as well.

Market Forecasts

I.     Forecasted Growth. The vast majority of attendees departed the Conference bullish on the near term growth potential of the Fund Finance markets in the Asia-Pacific.  Absent a systematic event, there are simply too many positive trends to think, the market will not continue to expand.  According to Preqin data, of the 3,100 plus Funds that are fundraising globally right now, 21% have an Asia focus.  That is a far higher percentage of private capital than Asia has historically raised.  95% of Investors have reported they intend to increase or maintain their allocation to the region in the next twelve months.  Panelists at the Conference estimate that today only about 50% of Asia-based Funds are utilizing Facilities, suggesting that growth via penetration remains.  Finally, local advisors report heightened levels of inquiry and interest, all forecasting continued market expansion.

II.    Chinese Bank Speculation. Panelists at the Conference contemplated whether a market disruptor might emerge in the near future.  One prediction:  the Chinese banks.  While the Chinese banks have certainly participated in the Facility markets from time to time, they have yet to enter the market at scale.  However, if you look at the Asian leveraged finance market as a potential model, the Chinese banks have meaningfully entered that market, competing effectively on both price and structure.  They now command a significant market share of the Asia-Pacific leveraged finance market.  Their comfort level with local sovereign Investors and historical touch points with Asia based Sponsors being what it is, will the Chinese banks take a more relationship-based approach to underwriting Funds and therefore disrupt the market?


The Asia-Pacific Fund Finance Market appears poised to maintain and continue its recent growth trajectory.  Despite a few real challenges at the margins, we see the region as a potential source of business growth for Lenders and advisors.  We also see opportunity for Sponsors in the region to more optimally manage their Funds' balance sheets with Facilities and appropriate leverage, improving overall performance and returns for their Investors.  We look forward to the 2018 Conference and the further development of the market.


1 The slides from Ms. Teo's presentation are available on the FFA's website at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.