UK: The Evolution Of Subscription Credit Facilities For Separately Managed Accounts In Europe

Last Updated: 17 May 2019
Article by Paul Tannenbaum, Kristin M. Rylko and Catherine T. Kiwala

There has been a strong surge in recent years of large institutional investors such as state retirement plans and sovereign wealth funds making use of separately managed accounts ("SMAs") as an investment vehicle. Tailored commercial terms and documentation have become increasingly attractive to such investors (each, an "Investor") and, in addition, sponsors see a benefit in meeting some of their largest and most loyal Investors' demands through the establishment of SMAs. Investments have been made with or in private equity firms, credit firms and private equity real estate firms, both in the United States and, more recently, in Europe. This has, in turn, led to an increased number of credit facilities backed by capital commitments of applicable Investors ("Subscription Credit Facilities") being sourced and provided to SMAs.

Separately Managed Accounts— An Overview

An SMA comprises a legal entity established for the purpose of executing usually a single Investor's investment agenda, under the management of an experienced investment advisor (or similar role) (each, a "Sponsor"). Typically these entities are structured as limited partnerships whose only limited partner is a single Investor. The Sponsor, in turn, assumes a non-equity (or de minimis equity) role—i.e., acting as general partner— which entails the day-to-day operations and management of the entity.

SMAs have steadily gained market share, both in the United States and in the European market (as compared to pooled funds and other investment structures) for several reasons. One, the structure affords the ability to implement bespoke, flexible investment strategies responsive to the Investor's risk appetite, desired asset classes and industries, and to suggest the Investor's investment policies, as well as tailored reporting requirements specifically negotiated to capture the Investor's own internal reporting needs. Two, when assets under management are high enough to realize efficiencies of scale, management fees tend to be lower for an SMA than for a pooled fund. Finally, a fund with a single Investor does not expose the Investor to the risk that other limited partners may default, thereby avoiding negative impacts on the profitability and overall creditworthiness of the fund. While the single Investor feature is a major driver for the growing popularity of the SMA investment structure, it is this aspect in particular that creates some of the key points to consider in relation to Subscription Credit Facilities entered into by such SMAs. To be clear, SMAs do not come without complexities, as Sponsors are often required to explore any potential conflicts of interest that may arise between investments funded by the SMA and other pooled funds generally included in the particular Sponsor's fund structure. The negotiation and documentation of the SMA may also be as costly and time-consuming as establishing a pooled fund.

Subscription Credit Facilities for SMAs

Both pooled funds and SMAs alike rely on the capital commitments of their respective investors to fund investments, and Subscription Credit Facilities are generally regarded as a valuable tool for an investment vehicle to deploy such capital in alignment with its operations strategy.1 Among other benefits, Subscription Credit Facilities provide an attractive source of quick liquidity (even providing next-day or same-day funding) and can minimize the need to issue capital calls to finance investments, thereby avoiding burdening the Investor as part of the closing process for an investment.

The issues a lender must consider in relation to SMAs in Europe and related facility documentation are in many respects similar to the issues impacting separate accounts and single investor vehicles in the United States.2 And as the popularity of SMAs for European Sponsors and their Investors has increased, Sponsors are frequently exploring financing options for their SMAs from their lenders. Like their US counterparts, European lenders have generally demonstrated an appetite to provide facilities for SMAs subject to a more stringent credit analysis given the concentration risks inherent in reliance on a single Investor. Lenders take into account a number of factors such as familiarity and relationship with the underlying Investor and/or the Sponsor itself; for certain European lenders, whether the bank and Investor operate in similar jurisdictions with an institutional understanding of the culture and local economy in which each operates; and, finally, the pricing of the facility, both in terms of up-front and ongoing costs to the SMA. While certain European lenders are more active than others in providing Subscription Credit Facilities to SMAs, many have indicated that viability for a particular fund is typically considered on a case-by-case basis in light of the above factors.

Documentation Considerations for Subscription Credit Facilities Provided to an SMA in Europe

The documentation posture taken by most market lenders in Europe differs in a few ways from the approach taken for pooled funds where a larger diversified investor pool supports the facility. In pooled funds, should an Investor default or fall out of the borrowing base, the commitments of the other Investors remain as a source of repayment for Subscription Credit Facility obligations. In an SMA structure, the single Investor's capital commitments are the primary credit consideration for the lender.

Generally, European lenders will seek to ensure that the fund documents appropriately address authorization of the general partner or investment manager to enter into Subscription Credit Facilities on behalf of the SMA and to pledge the fund's assets (which include, in the case of a Subscription Credit Facility, the Investor's agreement to advance capital when called). Fund documents generally include detailed borrowing provisions addressing lenders' requirements3 and other language relating to the ability to call capital typically required by lenders. As such, most European transactions with pooled investment vehicles do not require investor consent letters ("Investor Consent Letters") whereby investors separately enter into an agreement in favor of a lender, acknowledging and making representations regarding the investor's commitments to the fund and the security created in favor of the lender. Documentation for a Subscription Credit Facility to an SMA typically follows the standardized forms used in the European market (as applicable for the governing law of the facility agreement) and incorporates a well-known suite of documents—including a facility agreement, charges and account charges. The traditional approach in Europe to Subscription Credit Facilities of applying a coverage ratio (being the ratio of uncalled capital commitments of certain investors to aggregate financial indebtedness of the borrower)—as opposed to the US-style convention of formulating a borrowing base with investor concentration limits—is also well suited to Subscription Credit Facilities for SMAs, given the single Investor feature. However, because an SMA usually only has a single Investor, European lenders typically seek to bolster the standardized documentation with additional documentation in order to both deepen the lender's knowledge of and comfort with the underlying Investor and establish contractual privity between the lender and the Investor notwithstanding the adequacy of the fund documentation for the SMA. As such, European lenders to SMAs will in most cases require an Investor Consent Letter from the single Investor. As mentioned above, Investor Consent Letters have not been commonplace in European Subscription Credit Facilities, and so the recent increase in Subscription Credit Facilities for SMAs in Europe has created additional focus on Investor Consent Letters amongst European lenders, Sponsors, Investors and their applicable legal advisers.

Nevertheless, in the context of a Subscription Credit Facility for an SMA, the Investor Consent Letter is important from a lender's perspective for a number of reasons. First, the Investor Consent Letter creates a direct agreement between the lender and the Investor (which for many lenders that provide this product is a key credit requirement given that the creditworthiness of the single Investor is the primary source of repayment for Subscription Credit Facility obligations). Second, sovereign immunity, which may apply to Investors that will invest in SMAs, will often not be adequately addressed in fund documentation, and lenders will require this to be dealt with in the Investor Consent Letter.

The scrutiny on the single Investor applies not only at a credit level for the lender and in relation to the diligence undertaken on the fund documents (as discussed above) but also impacts key provisions documented in the facility agreement and ancillary documents. Typical exclusion events that would exclude a particular Investor in a pooled fund from the borrowing base in a Subscription Credit Facility may be less flexible in certain aspects, including cure and grace periods. In addition, certain major exclusion events in relation to investors where there are multiple investors in a fund are typically re-drafted in SMA Subscription Credit Facilities as events of default. The remaining exclusion events trigger a mandatory prepayment, which, if not waived within an agreed timeframe (usually 30 days), would result in an event of default. Furthermore, transfers by the single Investor will generally require strict levels of approval from the lender. Lenders will also seek tighter reporting requirements given that the Sponsor is only reporting itself to, and managing the commitments of, a single Investor, and lenders will expect more timely delivery of information than Sponsors are often given when they are managing a large pool of investors. These terms are a few examples of the approach taken in Europe to the documentation as a result of the reliance placed on the single Investor by the lender providing a Subscription Credit Facility to the SMA.

Additional Product Offerings for SMAs in Europe

The rise in SMAs and financings being provided to SMAs in Europe has led to some innovative products and documents being offered by European lenders, particularly for Sponsors that manage a number of SMAs. In these instances, Sponsors have often sourced financing for multiple SMAs from a single lender or club of the same lenders. Where this is the case, the use of umbrella facilities (one documented facility agreement entered into with a number of fund borrowers that each have access to a Separate Subscription Credit Facility under the single document on a noncross- collateralized basis) ("Umbrella Facilities") is often considered. These types of facilities may be viewed as efficient across the platform and reduce the required documentation for a number of separate facility agreements that have substantially similar terms.

Other technologies that have been used for SMA financings include common terms agreements (each a "CTA"). Similar to Umbrella Facilities, a CTA agreed between the lender and the Sponsor contains the key legal documentation provisions found in a standard facility agreement for a Subscription Credit Facility (including, by way of example, repayment, interest provisions, tax, representations, undertakings, events of default and lender and agency mechanics). The CTA may then be appended to any number of short form facility agreements for a Subscription Credit Facility for any number of SMAs. The short-form facility agreements will include the relevant parties, facility amount, commercial terms (such as pricing and fees) and any other terms applicable for the specific SMA and the Subscription Credit Facility being provided to such SMA. As the CTA will be in an agreed form for each facility agreement required, execution of each facility agreement (once the CTA is agreed) can be very efficient.

One benefit of the CTA in contrast to an Umbrella Facility is that a CTA can be agreed upfront and can then be appended to shortform facility agreements required by SMAs over time at the relevant points at which the Sponsor required the Subscription Credit Facility for such SMA (with any amendments required to the CTA being made as applicable). An Umbrella Facility, by contrast, is typically entered into by all applicable borrowers at the same time albeit additional borrowers may accede as required. Although Umbrella Facilities and CTAs are not new to the European market, the increase in financings being provided to SMAs in Europe has resulted in increased consideration of these products by Sponsors.


European Sponsors and Investors alike are likely to continue seeking opportunities for SMAs, and this will in turn drive demand for financing products to be sourced and made available to these fund structures. As the types of Investors investing through SMAs potentially diversifies, further lender scrutiny could lead to more developments in the approach to the diligence undertaken on fund documentation and protections sought in the facility agreement and Investor Consent Letters. For larger sponsors with multiple SMAs, there could also be an increasing appetite for Umbrella Facilities and CTA documentation processes. Despite the bespoke nature of the SMA structure, we anticipate that European lenders and Sponsors alike will continue to work on creative structural and documentation solutions for Subscription Credit Facilities to SMAs in order to provide liquidity to this growing segment of the market.


1 See "The Advantages of Subscription Credit Facilities" in the Fund Finance Market Review Spring 2017 (available at:

2 See "Separate Accounts vs. Commingled Funds: Similarities and Differences in the Context of Credit Facilities" in the Fund Finance Market Review Summer 2013 (available at: and "Lending to Single Investor Funds: Issues in Connection with Subscription Credit Facilities" in the Fund Finance Market Review Fall 2016 (available at:

3 See "Model LPA Provisions for Subscription Credit Facilities" in this Fund Finance Market Review Spring 2019 on p. 30.

Visit us at

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions