Current economic conditions have put a significant strain on the Private Lending Industry. As things become more volatile, it’s very important for fund managers to maintain visibility over certain key items to ensure continued success in their business operations.
Fund managers must communicate their plans to investors, including their plans to address the incoming recessionary environment, impact on home prices, and a rising rate environment. In delivering these messages, ensuring transparency and integrity throughout the process is paramount. Fund managers should never hide material facts from their investors. While this is done via disclosures and communications (see below), it is also achieved by relying on the strong relationships you have built with your investors over the years. Telephone calls, video conferencing, and webinars are great ways to have a direct line of communication to your investors and deliver your message with a personal touch.
Disclosures and Communications
An incoming recession can hurt a fund’s performance. Ensuring your private placement memorandum addresses the incoming recessionary impacts is of the utmost importance. It is also necessary to ensure your offering documents disclose and explain the powers and protocols you have for redemptions. We recommend fund managers deliver supplemental disclosures if the existing fund’s offering documents do not address these issues. Such disclosures may require a material change in terms and could result in a vote from the existing investors.
Evaluate Insurance and Banking Relationships
Like any business, your insurance policies may provide additional coverage for business disruption and certain force majeure scenarios. Speak with your carrier and read your policy to ascertain what types of carveouts exist. Be sure what specific call rights your credit lines provide and what solutions are in place to ensure your relationship with your insurance agent and your banking relationships are never tested to their limits.
Institutional Capital Markets Relationships
There are still several capital markets resources in our market today – many have become household names, and many have reduced or halted their activities, but this is likely a temporary issue. To fill the gap, contact your colleagues, competitors, and friends in the market. Collaborate and work towards a solution, and you will be amazed what you can achieve.