Elana Margulies

13/07/2011 Author: Elana Margulies

FoHF bridge financing resurgence continues

Following reports in HFMWeek (April 7) that financing activity for funds of hedge funds (FoHFs) had bounced back from a 2008 low, further service providers are now taking a fresh look at the space. A move propelled by a seemingly resurgent FoHF sector’s need for bridging loans.

BNP Paribas is one of the latest firms to return. The Securities Services arm of the global bank has started to offer its FoHF clients a multi-year, committed credit facility, which provides secure access to liquidity.

“We are strongly committed to delivering liquidity solutions to the alternative fund industry,” said David Seaman, director at BNP Paribas, who is in charge of offering financing to these FoHFs. “A committed facility is a key component to the funds’ ability to maximize returns, in that it provides security and flexibility to managers and investors alike.”

When firms like BNP deliver liquidity solutions to FoHFs, inherently, they are providing short-term financing primarily used to close the liquidity gap between redemptions and subscriptions – particularly with European and Asian investor funds looking to settle FX hedging.

Three years ago, when there was a liquidity drought, many banks were unable to accommodate hedge funds that sought these loans. Now lines of credit are available, but, with the FoHF sector an atomised one, not all clients are desirable to a new wave of lenders.

Specifically, with the committed financing option BNP Paribas provides, the bank has found that it is more suited to larger FoHFs, those typically with AuM greater than $500m, on the premise that these funds have more diversified portfolios and it is easier for them to offer quality collateral.

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