Zac Barnett is a Chicago-area attorney and fund finance debt advisor known for his extensive experience in private equity, commercial lending, and fund finance. As co-founder of Fund Finance Partners, LLC, he advises private fund sponsors on financing strategies, fund-level debt solutions, and facility documentation processes designed to improve efficiency and reduce execution costs. Over the course of his career, Zac Barnett has represented both lenders and borrowers across a broad range of complex transactions involving private equity funds, hedge funds, REITs, and private credit structures. His background in fund finance and commercial lending provides insight into evolving market trends, including the growing relationship between insurance firms and private credit markets. His work and thought leadership have been recognized by publications including Bloomberg, the Los Angeles Times, and Private Equity International, along with honors from Chambers USA and IFLR1000 Americas.
Exploring the Intersection of Insurance and Fund Finance
Historically, insurance and financial services operated as distinct fields. Today, these industries are collaborating, a shift where insurers are moving past risk management to become participants in private credit markets. Insurance firms are not only keeping massive cash reserves, but they are also allocating capital through fund finance products to achieve alternative returns.
The world’s fund finance market is valued at more than $1 trillion. The rapid growth of the private credit market creates a demand for new capital sources other than banks. Still, the global banking industry controls a large part of the private credit market. However, the need to spread risk has created space for new participants.
Insurance companies now act as nontraditional lenders. By joining large, shared loan arrangements, they reduce the risk of any one borrower defaulting, since many lenders share the losses. This allows insurers to diversify their investments while playing a larger role in the financial system.
Notably, the entry of insurance firms into this space has changed how banks operate. They now view insurers as partners in sharing loan-associated risks. This collaboration allows banks to stay within their lending limits without losing clients. Despite this, the entry of nonbank lenders can lead to price competition and low margins. Insurers may also withdraw capital during times of financial distress. Therefore, banks must balance liquidity needs against shifting market dynamics.
Various key instruments are driving the insurance-fund finance partnership, including subscription lines, Net Asset Value (NAV) facilities, rated-note feeder structures, and management company lines. Subscription lines provide loans secured by high-quality investors’ capital commitments. These arrangements have a low risk of borrowers failing to repay, and help private funds quickly access cash when needed.
NAV facilities use a fund’s portfolio assets and cash flow as collateral. They aim for better returns and use extra assets as a safety net to guard against market losses. With rate-note feeders, financial firms package fund investments into rated debt portions that insurers can buy. This gives insurers investments with specific credit ratings, helping them use their capital more efficiently.
Management company lines support asset managers’ daily operations and growth. Lastly, general partner (GP) loans allow fund managers to finance their own fund commitments. Collectively, these tools allow insurers to access private markets while managing risk.
Among the reasons fund finance appeals to the insurance sector is that fund finance products offer higher returns than traditional liquid assets. These instruments usually have periods ranging from two to five years, a timeline that allows insurers to match their investments with long-term payment obligations. Floating-rate debt tools also shield against the negative effects of rising interest rates.
These returns don’t move in line with public markets, so they often hold their value when public markets drop. Built-in protections also reduce the risk of total loss, and if a fund fails, the underlying assets stay protected. Furthermore, fixed payment schedules and automatic debt repayment keep returns predictable.
There are some regulatory considerations. National regulators such as the National Association of Insurance Commissioners (NAIC) set rules on how much cash insurers must keep in reserve. To follow these rules, investment tools like subscription lines or NAV facilities must meet specific safety standards to be treated as bonds, a status that allows firms to keep less money on the side. Therefore, insurers can use more capital to generate returns.
In addition, getting top credit ratings from recognized agencies is key to keeping costs low. High ratings mean insurers hold less capital in reserve, boosting returns while staying within regulations. Regular monitoring and reporting help firms maintain these advantages.
About Zac Barnett
Zac Barnett is the co-founder of Fund Finance Partners, LLC and an internationally recognized attorney focused on fund finance, private equity, and commercial lending. He spent 17 years at Mayer Brown, LLP, representing lenders and borrowers in complex financing transactions involving private equity, hedge funds, and private credit structures. Over the course of his career, he has worked on more than 500 lending deals representing approximately $75 billion in loan commitments and has authored numerous thought pieces on fund finance and regulatory developments.
