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Alternative Market Briefing

Other Voices: A guide to 'recycling' options for fund managers

Friday, June 26, 2020

By: Edward Lee, Cameron Roper, Nick Rose, Proskauer

The ongoing COVID-19 crisis is presenting fund managers with numerous challenges. One key challenge is to make sure that their portfolio companies have sufficient capital available to weather this particular storm. But how can fund managers ensure the liquidity required by their funds and portfolio companies is available?

Proskauer's leading Private Investment Funds team examines the 'recycling' options available in the market and outlines the main considerations fund managers should keep in mind when considering liquidity options.

Fund recycling explained

When fund managers find their portfolios in need of additional funding they can seek financing from multiple sources of alternative capital to help them get through challenging periods. These would include co-investments, annex or top-up vehicles, borrowing from third party lenders, GP-led secondary transactions, 'preferred-equity' solutions, reinvesting cash received by the fund from investments and/or maximising their funds' undrawn commitments through recalling previously distributed cash. This 'recycling' allows fund managers to inject much needed short term capital.

Recycling options

The recycling options available to a fund will depend on what is included in the fund's governing documents. These are some of the most commonly available options to recycle distributions:

  • Amounts drawn for investment or another purpose but ultim......................

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