MassMutual looks to tap a wider market for its fund finance products

Insurance companies are stepping in to fill a supply gap in fund finance, and one of the insurance worlds’ first movers in the market is looking to expand its fingerprint.

Massachusetts Mutual Life Insurance Company announced plans to move its fund finance unit, Direct Private Investments, as well as its equipment finance company MassMutual Asset Finance, to its wholly owned subsidiary Barings, this week.

The move, after the insurer hired fund finance veteran Matt Hansford from Investec last year to help the DPI unit push into Europe, signals optimism for broader demand for exposure to fund finance from institutional investors. The transition is scheduled for the second quarter of this year.

MassMutual has been active in the fund finance market since 2017, Phillip Titolo, head of MassMutual’s DPI group, said in a phone interview (Private Funds CFO previously reported that the insurer had hired Matt Hansford to start a NAV-lending business. Titolo says that the hire was rather to effect an expansion into Europe). The group has originated upwards of $35 billion in private direct investments since the platform’s launch, according to MassMutual.

But a pullback in bank lending alongside a general acceptance of fund finance as a viable set of products among managers has led to a supply gap in both the subscription credit line market and in the lower-yielding part of the NAV lending market where banks were a significant chunk of the market.

“The gap is only increasing,” Titolo said. “The challenge is that, while it is an attractive product for institutional investors, there are almost no access points into it for them, at this moment.”

Moving DPI under Barings’ wing will give the team, comprising some 30 people across the US and Europe, access to that institutional capital. Up until now, DPI has only managed MassMutual’s money. But the new structure could help MassMutual access previously untapped pools of capital from the likes of pension funds and sovereign wealth funds with large fixed and floating rate portfolios and a need to diversify. (Unlike concentrated NAV lenders, who shoot for overall yield, generally in the double-digit percentages, MassMutual’s products are priced at a spread over the risk-free rate, like bonds).

The team’s target assets differ from the non-bank led “concentrated” NAV market. Alongside the traditionally bank-led market for lending on secondaries interests, Titolo and Hansford said they provide asset-based lending to direct lending funds with portfolios of, primarily, first lien, senior secured commercial real estate loans and corporate credit, as well as providing GP financings.

In the last year or so, insurance companies have been said to be an increasingly active presence in parts of the fund finance market. Many PE-backed insurers have been stepping in, along with a small number of the big-name insurers.

But market participants have wondered how well-suited insurance companies are to the market, since the defensive and offensive capital NAV loans are meant to provide are often needed quickly, (though some of the non-bank, concentrated NAV lenders can take weeks or months of due diligence before providing financing). Insurance companies’ investment committees are notoriously slow to take up activity in new areas, as well as in their vetting of potential credits.

But Titolo said MassMutual’s investment committee is quicker to act than the average insurer. “I think MassMutual has been way more streamlined in terms of getting things approved” than might be the case for some other insurance companies, he suggested. “Our investment committee meets every week,” he said.

And he pointed to MassMutual’s lending activity in March and April 2020, at the height of the corporate liquidity crisis precipitated by the covid pandemic. “We did short-dated loans, what some would call rescue loans, for folks facing liquidity crunches,” he said. “We did two of them within seven days. They were long nights.”