Finance
Haynes Boone on the future of fund finance
This article is sponsored by Haynes Boone
As an asset class, private capital has experienced exponential growth in the past few decades, more than doubling its assets under management from less than $10 trillion globally in 2012 to more than $24 trillion in 2022. The fund finance industry has grown alongside it, starting from a nascent product in the late 1980s to an almost universal part in every fund’s capital structure today.
Fund sponsors now routinely include ‘bankable provisions’ for subscription line facility lenders in fund documents as anticipation for the use of this product by each of their funds, and are increasingly adding flexibility to expressly pledge their assets for use in net asset value (NAV) facilities.
Latest estimates put the global fund finance industry at more than $1 trillion. Many leading lenders in the space are operating at their maximum internal capital allocation. Nevertheless, they want to continue to maintain and expand their relationships with key sponsors. To that end, these institutions are turning to structured finance tools to reduce their capital reserve requirements, including credit facility ratings, conduit lending structures, securitizations, silent participations and capital relief trades.
Several leading rating agencies have expanded the scope of finance products they rate to include subscription line facilities, collateralized fund obligations and NAV financings. Once a predominantly European concept, ratings have been gaining ground in North America, with public and private ratings being requested by both borrowers and lenders. This trend is an attempt to attract different lenders, allow for higher holds from syndicate members due to enhanced capital treatment and offer more competitive pricing and terms.
Securitizations, capital relief trades and other capital market solutions are being explored by banks to help alleviate capital reserve requirement constraints. Early users of these tools are facing difficulties securitizing portfolios of facilities in an industry with private and bespoke terms, but as the pressure for solutions offering capital relief increases, the industry may begin to coalesce around a set of standardized terms that allows these capital market solutions to flourish.
Finally, a somewhat recent development in the industry has been the introduction of various non-bank lenders, primarily insurance companies. This has come with its own set of challenges, including the need to structure some deals with term and revolver components or include USD and alternative currency tranche lenders. But it has also come with opportunities to syndicate deals to a much broader pool of institutions.
NAV financings
The growth in NAV financings reminds market participants of the early stages of subscription line facilities. Many of the same criticisms once levied against subscription line facilities (which are now an industry-wide accepted and beneficial leverage and cash management tool) are being raised with respect to NAV financings. Despite all the criticisms, there has been growth on both the supply and demand side for NAV financings, with lenders and borrowers highlighting the legitimate uses and trying to educate LPs, rating agencies, regulators and others on the benefits of this form of leverage.
More than 70 percent of sponsors and lenders at NAVember (an annual NAV-focused event hosted by Haynes Boone) expected growth in their NAV financings portfolio in 2024. Lenders that offer this product include traditional subscription line lenders expanding into NAV financings, but also specialized non-bank lenders, offering flexible and tailored terms and structures.
Interest rate environment
Rising interest rates and higher pricing has been one of the most significant changes in the fund finance market in recent years. Our data shows that pricing has largely stabilized over the last two quarters, after adjusting for the anticipated regulations surrounding the capital reserve requirements that banks must hold for these products and some of the supply side issues caused by regional bank failures in 2023. While rates and pricing have increased at a much faster rate than prior business cycles, it’s important to note that current rates are not unprecedented, and markets have weathered high rates in the past and continue to do so.
Funds are still actively utilizing the product, with industry surveys from H1 2024 indicating that 81 percent of PE funds are maintaining the use of their subscription line facilities notwithstanding the higher interest rate environment and, as of September 2023, more than 95 percent of private capital funds have access to subscription credit facilities. A survey by Haynes Boone of 120 sponsors, lenders and other fund finance market participants found that 74 percent of institutions are expecting some level of growth in their fund finance exposure in 2024, with 63 percent expecting an overall increase in the fund finance market in 2024.
And even if pricing does not return to the lower levels seen in the past decade, subscription line financings still provide certainty and flexibility of funding, quick access to liquidity and reduce the administrative burden. With higher rates, funds are more judicious on the sizes of their facilities and increasing/decreasing the size to better match their predicted needs, and also on the tenor of outstanding borrowings.
Geographic expansion
The fund finance industry is well established in North America and Europe, with the Fund Finance Association hosting its 13th and eighth annual symposium in these respective geographies. Additionally, the Asia-Pacific region has been an area of recent growth, both domestically in APAC, but also with regional lenders entering the European and North American markets. This year, there was enough interest and participation in the Japanese market for FFA to launch a separate fund finance conference focused on Japanese sponsors, lenders and investors, and a discussion on some of the nuances and market practices in Japan – in addition to FFA hosting its sixth annual Asia-Pacific symposium in Singapore.
With the continued expansion of private capital and renewed fundraising efforts on specific types of investors and new geographies, fund finance lenders are adapting to the regional needs of private capital firms and the shifting supply and demand of financing in different regions, while law firms are expanding and gaining expertise across various jurisdictions as a response to the increased diversification of investor jurisdictions that funds are exploring.
Artificial intelligence
Artificial intelligence is poised to disrupt almost all industries and markets, and the private capital, banking and legal industries are no exception.
In the coming years, funds will develop AI tools to analyze potential deals and suggest optimal leverage levels/techniques and employ AI strategies to add value to existing portfolio companies. Lenders will utilize AI to assist with diligence and underwriting, monitor portfolio exposure and run risk assessments. Lawyers and law firms will use AI to assist with due diligence, drafting and negotiating documents, reviewing large volumes of data, and more readily identify market trends. Although AI cannot replace the judgment, experience, common sense and analytical capabilities of our industry’s experts, it will continue to be a tool to enhance those capabilities and become more accurate, efficient and productive.
Albert Tan is a partner and co-head of fund finance, and Aleksandra Kopec and Brent Shultz are partners in fund finance, at Haynes Boone
The future of finance, especially global finance, is not on the horizon — it’s happening now. Countries and Institutions that embrace interoperability, real-time compliance, and quantum-resilient security are positioning themselves as leaders of this transformation.
The financial system is in the midst of a monumental shift. Central Bank Digital Currencies (CBDCs) are gaining momentum as governments and regulators aim to modernize monetary systems, while Decentralized Finance (DeFi) continues to challenge conventional financial services with speed, transparency, and decentralization. However, despite their potential, these two forces — along with traditional financial systems — remain disjointed. This fragmentation results in inefficiencies, rising costs, and settlement delays, hindering global financial connectivity. Bridging these worlds is no longer optional — it’s essential to create a faster, more secure, and more inclusive financial future.
The Problems Holding Finance Back
For decades, the global financial system has relied on legacy infrastructure and fragmented regulatory and banking industry frameworks. While it has supported cross-border payments and international trade, it has done so at an exorbitant cost in terms of both time and money. The involvement of global politics has added an additional level as well to an already complex system. The emergence of blockchain-based DeFi platforms introduced new possibilities but failed to solve the underlying issues of scalability and compliance. Meanwhile, CBDCs add a new layer of complexity as central banks look to maintain control while modernizing payments.
The key obstacles are clear:
- Slow and Expensive Payments: Cross-border payments processed through SWIFT are slow and require multiple intermediaries, each adding fees, delays, and points of failure. The type of transfers are limited.
- Disjointed Regulatory Compliance: Payments crossing borders must comply with a patchwork of jurisdictional regulations, including Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. Current processes are slow, manual, and costly.
- Lack of Interoperability: DeFi platforms, CBDCs, and traditional banking systems all operate on isolated infrastructures, making it difficult to move money between them efficiently.
- Scalability Issues: DeFi platforms face network congestion during high-volume periods, resulting in slower transaction speeds and higher fees — far from ideal for large-scale financial operations.
These challenges are not theoretical. They’re real-world problems faced by financial institutions, payment providers, and central banks trying to create more efficient, resilient systems.
See also: Transforming the Financial Sector: The Impact of Automation in Banking
Interoperability: The Bedrock of the Next Financial System
True interoperability is not a feature — it’s a requirement. For traditional finance, DeFi, and CBDCs to coexist, they must be able to communicate and transfer value across one another. Without this capability, cross-border payments will remain slow, and multi-system operations will continue to require expensive manual reconciliation. Interoperability enables payments to flow seamlessly between bank networks, DeFi protocols, and CBDC platforms, cutting out intermediaries and automating settlement.
What true interoperability requires:
- Multi-Ledger Transaction Support: Payments must move across different financial ledgers — from commercial banks to DeFi protocols to central bank digital currency networks — without reconciliation bottlenecks.
- Real-Time, Multi-Currency Settlement: Payments involving fiat, cryptocurrencies, and CBDCs must be processed and settled in real time, enabling frictionless commerce at scale.
- The governance, regulatory, privacy, and Nation-State requirements need to be automated in the new Platform.
- Universal Payment Flows: Payment solutions must enable a single payment to cross multiple networks — legacy, private, blockchain, and government-issued systems — without requiring separate processing channels.
The results are undeniable: greater efficiency, lower settlement costs, and a path to instant cross-border payments. This shift eliminates the need for batch processing and multi-step settlement chains, replacing them with real-time payment routing and automated multi-ledger transfers.
Compliance Can’t Be Bolted On – It Must Be Embedded
Cross-border payments are subject to varying regulatory requirements, which are enforced by regional authorities. Ensuring compliance with KYC, AML, and sanctions screening has traditionally been a manual, labor-intensive process, leading to costly delays. But the future of compliance is no longer manual — it’s embedded. By embedding compliance checks directly into payment flows, financial institutions can meet regulatory requirements in real time, reducing risk, eliminating delays, and supporting faster payments.
Key elements of embedded compliance:
- On-Demand KYC/AML Screening: Compliance screening occurs automatically, with KYC/AML checks happening as the payment is processed, not after.
- Dynamic Rule Adjustment: When payments cross borders, the system recognizes which jurisdictions are involved and applies the proper compliance rules in real time.
- Automated Risk Scoring: Transactions are evaluated for risk on the fly, with high-risk payments flagged for review while low-risk payments flow uninterrupted.
- Immutable Audit Trails: Every payment is accompanied by an immutable, tamper-proof record that supports regulatory audits and provides transparency.
By automating and embedding compliance into the payment process itself, financial institutions lower operational costs, reduce exposure to regulatory risk, and accelerate payment settlement. This approach moves compliance from being a roadblock to being an enabler.
Securing Payments for the Quantum Era
As quantum computing advances, the cryptographic protections that underpin today’s financial system are at risk. Many existing encryption methods, like RSA and ECC, could be cracked by a quantum computer. While quantum computing may seem distant, its implications for financial security are real. The financial sector must act now to prepare for a post-quantum world.
Key security measures to counter quantum threats:
- Quantum-Resistant Cryptographic Protocols: These protocols are immune to attacks from quantum computers, ensuring that even future advancements won’t compromise financial data.
- Post-Quantum Key Exchange: Secure key exchange protocols ensure encryption keys remain secure during transmission, even if intercepted.
- Zero-Day Threat Detection: AI models track network activity, flagging and neutralizing unknown threats before they can do harm.
- New file systems that rely on a multi-layered approach that separates the data in a way to enhance security, speed, and scalability.
The transition to quantum-resistant encryption isn’t speculative. Financial leaders know that, when quantum computing matures, it will disrupt financial security as we know it. Early adoption of quantum-safe protocols future-proofs payment infrastructure, ensuring financial stability in a rapidly evolving threat landscape.
Distributed Edge Processing: Faster Payments with Local Control
For decades, payment processing has relied on centralized data centers that route transactions through a central hub. While effective, this model introduces latency, network congestion, and single points of failure. The future of payment processing is at the edge.
Edge processing pushes payment activity to the “edge” of the network — closer to where the payment originates — reducing travel time and allowing payments to be processed locally. Instead of relying on a central server, mini-processing nodes handle payments on-site, enabling near-instant settlements.
How edge processing changes the game:
- Real-Time Settlement: Payments are processed on-site, at the source, rather than waiting for clearance from a central location.
- Resilient Infrastructure: Multiple nodes create redundancy, so if one node goes offline, the others maintain operational uptime.
- Reduced Latency: Local processing eliminates the round-trip delay that occurs when payments are routed to and from a central server.
This shift in processing models enables faster cross-border payments and lays the groundwork for true real-time settlement. Localized processing nodes create resilience, reduce downtime, and remove bottlenecks in global payment flows.
Sustainability and Financial Inclusion as Critical Imperatives
ESG (Environmental, Social, and Governance) factors are playing a larger role in financial infrastructure design. From environmental sustainability to financial inclusion, future-ready payment infrastructure must meet new societal expectations. This shift is not just ethical; it’s strategic. Institutions are under pressure from regulators, investors, and customers to create more equitable, transparent, and sustainable financial systems.
ESG-driven imperatives shaping financial infrastructure:
- Environmental Impact: Centralized data centers consume enormous amounts of energy. By adopting distributed processing, institutions reduce energy use and carbon emissions.
- Financial Inclusion: Millions of people remain unbanked. Financial inclusion solutions enable low-cost cross-border payments, giving underserved communities access to global finance.
- Transparency and Accountability: Blockchain-based payment records create immutable, tamper-proof audit trails, ensuring visibility into every transaction.
The Call to Lead the Financial Future
The future of finance, especially global finance, is not on the horizon — it’s happening now. Countries and Institutions that embrace interoperability, real-time compliance, and quantum-resilient security are positioning themselves as leaders of this transformation. Delays are no longer an option. The financial world will reward those who act with speed, precision, and foresight. The question is not if change will come — it’s whether you’ll be ready to lead it.
Finance
Your money habits trace back to childhood, financial psychotherapist says. Here's how to fix them
Child saving money in a glass jar at home
Pinstock | E+ | Getty Images
Your relationship with money might seem random, but one expert says it offers clues about your childhood — and understanding this could help overcome toxic spending habits.
Vicky Reynal, a financial psychotherapist and author of “Money on Your Mind,” told CNBC Make It that there are psychological reasons behind our spending habits, and many of these attitudes stem from childhood experiences.
“Our emotional experiences growing up will shape who we become,” she said.
For example, someone who felt secure during childhood might feel that they deserve good things, and later in life may be more likely to negotiate a higher salary or enjoy the money they have, Reynal said. Whereas someone who experienced childhood neglect may grow up with low self-esteem and act this out through money behaviors.
This could include feeling guilty when spending money because they don’t feel they deserve good things, or splashing the cash to impress because they feel unworthy of attention.
“The little toddler that goes up to their parents to show them their scribble — how they get responded to will give them a message about how the world will respond to them,” Reynal added.
Scarcity or wealth
Reynal said “the money lessons we learn growing up” are largely shaped by whether we grew up in an environment of scarcity or wealth.
“To give you an example, growing up in scarcity, people that manage to move themselves out of that economic reality, and maybe in their own adult life manage to accumulate quite a bit of wealth, it’s quite common for them to struggle with what they call the scarcity mindset,” Reynal said.
This is a pattern of thinking that fixates on the idea that you don’t have enough of something, like money. A scarcity mindset means someone might struggle to enjoy the money they’ve earned and be anxious about spending it, Reynal added.
Alternatively, there are people who grew up with little but became wealthy, and are now very careless with money.
“They’re giving themselves everything that they longed for when they were little so they might go on the other extreme and start spending it quite carelessly, because now they want to give their children everything that their parents couldn’t give them,” Reynal added.
Stop self-sabotaging
The key to overcoming toxic spending habits is to stop self-sabotaging — a common behavior — according to Reynal.
“Often behind a pattern of financial self-sabotage, there are deep-seated emotional reasons, and it could range from feelings of anger, feelings of un-deservedness, to maybe a fear of independence and autonomy,” she said.
To identify these, you first have to determine what your financial habits and inconsistencies are, Reynal said, giving an example of someone who might overspend in the evenings.
“Is it boredom? Is it loneliness? What is the feeling that you might be trying to address with the overspending?” she said.
“That’s already giving you a clue as to what you could be doing different. So, if it’s boredom, what can you replace this terrible financial habit with?”
Reynal said she had a young client who would always run out of money within the first two weeks of the month. She asked them: “What would happen if you were financially responsible?”
The client revealed that they feared risking their relationship with their mother because every time they ran out of money, they called their mother to ask for more.
“Their parents had divorced a long time ago, and the only time they ever spoke to their mother was to ask for money,” Reynal said. “They had a vested interest in being bad with money, because if they were to become good with money, then they had the problem of: ‘I might not have an excuse to call mother anymore and I don’t know how to build that relationship again’.”
The financial psychotherapist recommended being “curious and nonjudgmental” when considering the root of bad spending behavior.
“So sometimes asking ourselves: “What feelings would I be left with if I actually didn’t self-sabotage financially, or if I weren’t so generous with my friends?’ That can start to reveal the reason why you might be doing it,” she added.
Portland-based CPA firm helps clients safeguard their wealth and secure their family’s future with comprehensive estate planning services.
PORTLAND, OREGON / ACCESSWIRE / December 26, 2024 / In a city renowned for its entrepreneurial spirit and thriving businesses, Downing & Co. is taking a bold step forward in helping Portland residents protect what matters most: their legacy. The firm offers specialized estate planning services, designed to ensure their clients’ wealth is preserved and passed down seamlessly to future generations.
With over five decades of experience in financial strategy, Downing & Co. brings a trusted, proactive approach to estate planning. As Portland’s go-to CPA firm, they’ve built a reputation for delivering personalized solutions that go beyond typical financial management. Their estate planning services focus on reducing tax burdens, avoiding costly mistakes, and ensuring assets are distributed according to the client’s wishes.
“Estate planning isn’t just about financial protection-it’s about preserving your life’s work and values for the people you care about,” said Tim Downing, Managing Principal at Downing & Co. “Our goal is to provide peace of mind by ensuring that clients’ wealth stays where it belongs-within their family and community.”
Why Estate Planning Matters in Portland
For high-net-worth individuals and small business owners, estate planning is critical in Portland’s competitive economic landscape. Without a clear plan, families risk losing up to 40% of their inheritance to taxes and government regulations. By offering expert guidance and strategic structuring, Downing & Co. ensures clients avoid these pitfalls while safeguarding their financial legacy.
Key benefits of Downing & Co.’s Estate Planning Services include:
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Minimizing Estate Taxes: Advanced planning can reduce the tax burden on your estate, ensuring more of your wealth is retained by your heirs.
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Preserving Family Legacies: Customized solutions ensure your assets align with your values, supporting the people and causes you care about most.
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Proactive Risk Mitigation: Estate plans address potential legal and financial risks, protecting your wealth against unforeseen challenges.
A Holistic Approach to Financial Security
Downing & Co.’s Estate Planning Services are part of a broader commitment to comprehensive financial management. Their holistic approach integrates tax planning, wealth preservation, and business advisory services to create a seamless strategy that addresses every aspect of a client’s financial well-being.
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