Secondary Credit Facilities for Private Equity and Hedge Funds: Financing LP Interests for Better Returns, Liquidity

Negotiating Eligible Investments, Advance Rates, Borrower Base and Financial Covenants; Alternative Deal Structures

Recording of a 90-minute CLE webinar with Q&A

Conducted on Tuesday, August 8, 2017
Recorded event now available

This CLE webinar will enable finance counsel to structure secondary credit facilities secured by limited partnership (LP) interests and related assets in private equity and hedge funds. The panel will discuss alternative deal structures, the deal terms related to each, and pitfalls to avoid.


Private equity sponsors are increasingly entering into secondary credit facilities secured by LP interests and other assets, to amplify returns and further monetize the investments in their portfolios. Similarly, hedge fund managers continue to use leverage secured by underlying LP interests to boost returns, and to assist with investor subscription and redemption cash management issues.

Secondary credit facilities are often structured to avoid violating certain restrictions on pledges or transfers of LP interests or to simply the transaction. A single purpose vehicle might be established to hold the LP interests and then pledge them to the lender as security for the loan.

Alternatively, the fund might transfer the LP interests into a securities account held by a custodian who functions as an intermediary, with the lender perfecting its security interest under Article 8 of the UCC and entitled to take control of the securities under an account control agreement.

Counsel needs an understanding of both underwriting and legal considerations to negotiate deal terms common to these facilities. These include the nature and types of LP interests and other collateral assets that may qualify as “eligible investments,” the advance rate the lender will charge for each type of collateral, the calculation of the borrower base, and financial covenants such as LTV or NAV limitations that may trigger an event of default.

Listen as our authoritative panel discusses the structural approaches to leveraging the value of LP interests in private equity and hedge funds. The panel will also examine the key negotiated provisions in each type of transaction.


  1. Secondary Credit Facilities - advantages, restrictions
  2. Approaches to structuring
    1. Straight pledge of LP interests (probably not practicable)
    2. Special purpose vehicle as holder of LP interests and borrower
    3. Use of securities account and account control agreement; UCC perfection
  3. Key financing terms
    1. Eligible investments
    2. Advance rates
    3. Borrowing base
    4. Financial covenants and related events of default
    5. Other


The panel will review these and other key issues:

  • What are the advantages and potential problems with leveraging LP interests and assets?
  • When is a SPV structure, as opposed to a UCC pledge with an account control agreement, appropriate for a PE fund?
  • What are the key deal terms to consider in a secondary credit facility?
  • How might deal terms vary between private equity and hedge funds?


Michael D. Belsley, Partner
Kirkland & Ellis, Chicago

Mr. Belsley's practice involves structuring, negotiating and documenting complex business transactions, including strategic and leveraged acquisitions, recapitalizations and divestitures, formation and governance of private equity funds (including primary investments in and secondary market sales of private equity fund interests), venture capital investments, mezzanine debt financings, equity financings and corporate governance matters. He regularly represents buyers and sellers, as well as market intermediaries, in their secondary market activities. His secondary market experience includes traditional portfolio sales, structured secondaries, synthetic secondaries, captive fund spin-outs, stapled secondary offerings, fund recapitalizations and restructurings, follow-on funding secondaries and orphaned asset sales in a variety of asset classes, including the venture capital, leveraged buy-out, special situations and real estate sectors. He also frequently represents both private equity fund sponsors and investors in private equity fund formations, fund-level restructurings and governance matters.

Leon Stephenson, Partner, European Head of Funds Finance
Reed Smith, London

Mr. Stephenson is a member of the Financial Industry Group and Head of Funds Financing in London. He and his team work with banks, other financial institutional lenders, Managers, General Partners and Limited Partners of funds on specialist financing transactions with private equity, secondaries, real estate, direct lending and infrastructure funds. His Firm has one of the market leading funds finance practices acting for lenders and funds in the European, US, Asian and Middle Eastern markets. He has particular specialist knowledge of NAV/Asset Backed and Hybrid facilities, capital call facilities, co-investment and GP/Manager support facilities and other types of liquidity facilities provided to funds. He represents a large proportion of lenders that provide fund financing and has just won the award of partner of the year for Banking at the Client Choice Awards 2017.


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Mark N. Berman

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Willa Cohen Bruckner


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