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Countdown to SONIA

The FCA gave its official thumbs up to the alternative risk-free rate; Q&A with Gene DelFavero, CFO of Alcion Ventures.

Market, meet SONIA. Now marry it: It’s been a while since I’ve personally checked in on the status of SONIA, but it’s nice to see sister title Private Debt Investor getting the latest. The UK’s Financial Conduct Authority and the Bank of England together issued a statement in January endorsing the Sterling Overnight Interbank Average Rate (SONIA) as the replacement for LIBOR in sterling interest rate swaps (by March 2), which makes it much more likely that other sterling, LIBOR-based markets will follow. That’s because, besides the fact that SONIA (and other alternative benchmark rates) are either 1) relatively new, with still-developing futures and swaps markets, or 2) not widely used as a benchmark rate for one reason or another, the big question is really: which one does my regulator want me to use? (There are, of course, other questions and conundrums. Some of them are secured rates, while LIBOR isn’t, and also theoretically as riskless as you can get, whereas LIBOR represented unsecured overnight bank risk. There are yet others.)

You can guess why anyone would be hesitant to endorse a new, largely untested rate before a regulator itself endorses it explicitly. During the transition process, someone is going to get sued. Documents on old deals will have to be amended, the overall interest paid on such instruments will of necessity change, etc, etc. There are a host of things that can go wrong, and many thousands of people and institutions it can go wrong for (not counting consumers, who will also be affected). And if you’re using a rate that was not endorsed by a regulator and something goes wrong, you’re risk of finding yourself in hot water with said regulator of course spikes.

So, good to know the FCA and BoE are giving the all-clear.

CFO outlook: Today we’re publishing the second of our CFO 2020 outlook Q&As. Last time, Riverside’s Jason Murphy fielded our questions. Today, it’s Gene DelFavero, CFO of Alcion Ventures. Connor Hussey asked the same series of questions to both to get some cross-comparison, and DelFavero’s insights into the private equity real estate sector are worth a read.

In particular, DelFavero foresees consolidation in the sector, as LPs migrate to bigger funds and talks about why now is a prime time to be an asset seller.

PERE Forum: Sister title PERE has readied the brochure for its CFOs & COOs Forum in April, with featured speakers, topics covered and registration and pricing info. Check that out here.