Evolving Competitor Definitions in Fund Finance

Recent developments in fund finance documentation reflect a significant shift in how insurance companies are treated under assignment provisions. Traditionally, “competitor” definitions have served to restrict loan assignments to entities competing with fund borrowers, except during default scenarios. While commercial and investment banks have long enjoyed carve-outs from these restrictions (though their sponsored funds remained subject to them), a new market standard is emerging.

Insurance companies are increasingly excluded from competitor definitions, while their affiliated funds continue to be classified as competitors. This treatment now mirrors the longstanding approach to commercial and investment banks, marking a notable evolution in market practice.

This shift has been driven by the increasingly complex and multifaceted role insurance companies play in the private capital markets. Insurance companies now operate across the entire private equity ecosystem: they act as direct lenders in fund finance facilities; serve as limited partners investing in private equity funds; own or control fund sponsors; and in some cases are owned by large private equity sponsors. This web of relationships creates unique considerations in competitor definition negotiations, as a single insurance company might simultaneously be a lender to a fund, an investor in that same fund (or a competing fund) and be owned by a competing sponsor.

The market’s response has been to recognize that insurance companies’ core lending activities should be treated like those of traditional financial institutions, while maintaining competitive safeguards around their fund management operations. This nuanced approach allows for greater liquidity in fund finance markets while preserving borrowers’ interests in restricting assignments to competitive fund management platforms.

Looking ahead, fund borrowers and their counsel should expect continued evolution in how competitor definitions address insurance companies’ multiple market roles. As insurance companies further expand their presence across the private capital landscape, facility documentation will likely require increasingly sophisticated carve-outs and restrictions to balance market liquidity with competitive concerns. This trend signals a broader transformation in fund finance as insurance companies cement their position as versatile and influential market participants.