Understanding Portfolio Financing

A graduate from Northwestern University School of Law, Chicago, Attorney Zac Barnett co-founded Fund Finance Partners, LLC in 2019. He consults with fund sponsors to ease lender comparison and formulate and implement a financing strategy to reduce transaction costs and duration. With over 20 years of experience as a lawyer in fund sponsoring, Attorney Zac Barnett has worked on several successful financing deals.

Portfolio financing allocates funds to a vehicle that owns or manages a diverse portfolio of companies. For repayment, the borrower prioritizes any cash flows from the diversified portfolio to the lender until the loan is fully paid, together with any agreed fees and interest. For example, if the funding vehicle sells shares or a company under its portfolio, the proceedings’ seniority commences with the lender. Typical portfolios borrowers include investors, management companies, and fund portfolio companies, as they enjoy unlimited and flexible financing flow.

The fund portfolio company utilizes the funds to expand acquisitions, increase investor liquidity, and optimize existing fund performance. On the other hand, management often seeks the funds to finance projects and balance finance sheets as an alternative to selling company equity to cover deficits. Lastly, investors primarily seek financing to fund commitments, balance existing portfolios, and access early liquidity.