LP credit lines; Old Ironsides dinged by SEC settlement

The idea of LPs using leverage to manage cashflows has been coming up recently; a private fund advisor has settled with the SEC over a marketing violation

In this April article, Alex Lynn reports that private capital advisory Eaton Partners had been contacted by LPs having trouble meeting capital calls. One solution floated is a credit line secured against an LP’s own AUM.

The idea that LPs, many of which like the regular scheduling of capital calls that GPs’ use of subscription credit lines can afford them, might take on that leverage themselves was also floated by one CFO who spoke to me for this article about GPs’ initial reactions to the Institutional Limited Partners Association new draft guidelines. Alex notes that the largest US public pension fund said last year that it was considering taking on a credit line in anticipation of a downturn.

One NAV lender I spoke to recently said they are looking at potentially providing NAV loans to LPs intended to help them manage cashflows in a time of low distributions and continuing capital calls (you’ll find that mentioned in the upcoming June issue).

Could it be that all of this is part of a longer term development in how LPs manage their cash? I’d love to know what you think.

Marketing violation: Sister title Regulatory Compliance Watch brings us this story about Old Ironsides and its settlement over a ‘mislabeling’ of one of its assets in a marketing brochure. The SEC has been (coincidentally?) upping the rate of settlements with private funds in recent weeks, and marketing violations are a pet peeve of the regulator.

Email prepared by Graham Bippart