How Top Emerging Managers Are Choosing Their Next Fund Banking Partner

By John DeMaio and Charlie Smith, Managing Directors, Stifel Bank, Fund Banking

Discover how the right fund banking partner can enhance your fund’s performance and accelerate your next fundraising round.

• Understand the impact of the 2023 banking crisis and how to find reliable banking relationships.
• Learn why choosing the right fund banking partner is crucial for your growth and success.
• Discover the essential credit facilities that can support your operations and growth.
• Find out how the right bank’s technology and dedicated support can streamline your fund management.

The bank failures of 2023 caused displacement, frustration, and confusion for even the most seasoned fund managers. In the months that followed, thousands were forced to transition their banking relationships. Those impacted most were emerging managers who rely on experienced banking teams to offer flexible credit solutions, high-touch service, and portfolio support.  

Today, fund banking remains in flux. Managers who transitioned to new banks are realizing their lender’s products and services are not aligned with their goals. These banks have limited interest in venture and fund banking given capital adequacy standards, limited product knowledge, or a general aversion to alternative lending. In turn, they’re not able to provide effective credit solutions for funds, management companies, general partners, and venture-backed businesses. 

As a result, new or emerging managers are searching for the best fund banking partners — those committed to the venture ecosystem with a track record of successfully managing financial uncertainty. 

Why are Emerging Managers Switching Fund Banking Partners?

In a tight market, even veteran sponsors may experience reduced availability of credit, lower advance rates, higher interest rates, and prolonged approvals. Emerging manager outcomes can be considerably worse in these environments. 

Banks that lack experience in fund banking may demand non-market terms or excessively conservative structures for credit facilities, which may diminish returns, reduce flexibility, and create distractions and frustration for investment managers. 

Managers may also receive poor guidance from inexperienced bankers who are confused by changing client needs or distracted by a shifting landscape. 

In today’s environment, fund managers face several challenges: 

• Interest Rates Will Remain “Higher for Longer”: Impacting the fund’s internal rate of return.
• Shifting LP Focus: Limited liquidity and recent bank failures have heightened the monitoring of returns and firm operations. 
• Increased Focus on Large Cap Sponsors: As bank liquidity improves, lenders move upstream and prefer to allocate their balance sheets to larger, more established funds that command larger loans, higher utilization, and lower perceived risks. This leaves emerging managers competing for attention and capital, often with less favorable terms.
• Banking Industry Evolution: Existing banks are exiting the space while new bank lenders, neo-banks, and private credit funds are entering. Additionally, banks are embracing a rising number of boutique fund administrators, who call for broad capabilities, collaborative relationships, and seamless integration for daily account reconciliation in order to assist their emerging manager clients.
• Modern CFOs: Emerging managers are partnering with a new generation of financial professionals. These CFOs require a bank partner who can align with their tools, speed, and technology-first approach to problem-solving. 

Managers should evaluate the long-term implications of their current banking relationship. Switching banks may be easier than you think and offers many potential benefits, including improved day-to-day service and long-term alignment with business goals. 

What Should you Look for in a Fund Banking Partner?

1. Evaluate Fund Banking Experience and Commitment

Don’t be a bank’s experiment. Prioritize banks with deep expertise in fund banking to mitigate risks associated with working with less experienced institutions.

Consider the following factors as you evaluate the bank’s experience and commitment: 

• Track Record: Choose banks with a proven track record of executing deals throughout multiple economic cycles.
• Long-term Commitment: Look for banks with a long-standing commitment to the venture and growth equity space. These lenders demonstrate continuity of service with minimal interruption and well-established relationships that allow them to solve problems quickly.
• Venture Experience: Seek out banks that support the entire venture ecosystem and possess deep networks in growth-stage markets. You need a bank that supports a healthy, growing, and knowledgeable pool of entrepreneurs and investors, especially in competitive markets.
• Strategic Alignment: Ensure the bank has a board-level commitment to the fund banking business and that its success is strategic and helps the bank achieve its growth goals. Under the right leadership, fund banking provides much more than balance sheet diversification. 
• Integrated Operations: Choose banks with premium platforms, best-in-class technology, and streamlined integration across multiple business lines. The best fund banking platforms have the right technology for your business needs. 

2. Assess All Available Credit Solutions

Ensure your bank can provide the necessary credit solutions to support your current operations and future growth. Look for deep product expertise in the following areas: 

• Capital Call Lines of Credit: These lines allow you to move quickly on new investments and call capital from limited partners on an agreed-upon cadence, improving operations and potentially performance. 
• Management Company Lines of Credit: Revolving lines are designed to bridge immediate cash needs, while term loans can assist with longer-term cash needs, such as financing placement agent fees, partner buyouts, acquisitions, and GP financing. Management companies may also use credit card solutions to help manage operations. 
• General Partner Lines of Credit: These lines enable partners to finance a portion of their individual commitments to one or multiple funds.
• NAV Facilities: These lines, designed for more mature funds, allow managers to make strategic, follow-on investments when little to no uncalled capital remains. 

Fund managers require bespoke credit solutions, as each fund has distinct needs. Engage in open dialogue with lenders to gauge their appetite, flexibility, creativity, and dedicated support required to help you navigate your complex financial challenges. 

3. Prioritize Treasury Management

As a fund manager, your primary focus should be returns and fundraising. Solving issues with treasury and cash management can drain resources and potentially cause meaningful distractions from the task at hand. You should seek out banking partners that provide robust cash management tools to handle these tasks efficiently and seamlessly.

Your firm needs reliable and valuable features, including:

• ICS^® with high FDIC coverage and competitive yields
• Streamlined digital onboarding for new accounts with 1-2 day turnarounds 
• Full integration with your fund administrator
• A mobile app with a user-friendly interface
• International capabilities with multi-currency accounts and FX hedging
• The ability to batch upload and release distributions to LPs
• Bespoke work streams, including customizable wire initiation and release 

These features ensure that your treasury and cash management operations run smoothly, allowing you to concentrate on what matters most.

4. Understand Business Synergies beyond Fund Banking

When choosing a bank, seek a financial partner that can assist with the needs of your portfolio companies and provide relevant, enhanced deal flow. Managers should consider the following aspects to ensure alignment with long-term goals and comprehensive support. 

• Networking Opportunities and Events: Choose banks at the center of the venture and growth equity ecosystems. Partner with those offering networking opportunities and industry events that will facilitate valuable connections and knowledge sharing. Participating enhances your visibility, credibility, deal flow, and access to limited and strategic partners.
• Long-Term Partnerships: Select a diversified financial institution that’s playing the long game and supports the entire sponsor model: fund banking, portfolio banking, investment banking, and private client services capable of assisting with large, complex liquidity events.
• Dedicated Support: Ensure you have access to a dedicated team that provides strategic guidance to address your evolving needs and helps capitalize on opportunities. Avoid low-touch resources and demand direct access to team members, including executive management. 

Stifel Leads the Way in Fund Banking 

In today’s evolving financial landscape, emerging managers face numerous challenges. The right banking partner can make all the difference in navigating these complexities and driving long-term success.

By offering deep expertise, a proven track record, and a genuine understanding of the fund banking space, Stifel Bank ensures you receive the strategic guidance, personalized support, and integrated solutions needed to thrive. 

With Stifel Bank, you gain more than just a banking partner — you gain a long-term ally dedicated to your fund’s long-term success. 

Have questions? Contact one of Stifel Bank’s Fund Banking Managing Directors, John DeMaio at johndemaio@stifelbank.com, or Charlie Smith at csmith@stifelbank.com.

^{Stifel Bank, Member FDIC.}

Frequently Asked Questions

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