Bank owned by private equity investors bets big on fund finance

EverBank HQ.png

Following five years of ownership by TIAA, EverBank in Jacksonville, Florida, has refreshed its brand identity and launched a new fund finance unit.

Six weeks shy of its 25th anniversary, EverBank in Jacksonville, Florida, is opening its latest chapter with new ownership, a refreshed brand and a high-powered new signature business line.

Last month, the $36.5 billion-asset EverBank — known as TIAA Bank before its Aug. 1 sale to an investor group — announced it had launched a fund finance division led by two industry stalwarts, Jeff Johnson and Mike Mascia.

Founded in 1998 by a mortgage company, EverBank has long been linked to home loans, a connection that continued during the five years of TIAA’s ownership. One- to four-family residential real estate loans still made up more than 41% of the company’s $28.2 billion loan portfolio on June 30.

Now, EverBank is touting a more commercially oriented business model with fund finance as a major pillar. The move aligns well with the company’s ownership structure, given that several members of its controlling investment group, including Warburg Pincus, Sixth Street and Stone Point Capital, are active in private equity and venture capital, Johnson said.  

“The opportunity to work for a bank owned by private equity, that understands this need and understands the services and understands the business proposition … really creates something special,” Johnson said in an interview. “Candidly, some of these big fund managers might [prefer dealing with a larger bank], but when Mike and I talk about what we’re doing with the team, that creates a lot of confidence. People end up leaving the meeting feeling like we need to figure out a way to do business together.”

“Jeff and I are thrilled to be part of EverBank and its leadership team,” Mascia said in a press release. “From day one, leadership has demonstrated a strong understanding and commitment to the fund finance business.”

Johnson founded and led Wells Fargo’s fund finance business and built it into the world’s largest global fund finance platform. Johnson is also a co-founder and the current chairman of the Fund Finance Association. Mascia, the EverBank division’s co-leader, chaired the finance practice and was a management committee member at the law firm Cadwalader, Wickersham and Taft, where he worked from 2006 to 2022.

Pairing Johnson and Mascia to lead EverBank’s fund finance initiative “brings together two of the historical architects of our industry,” Wesley Misson, who serves as head of fund finance and co-chairs the finance group at Cadwalader, said Tuesday in an interview.  “It will be great to see what they can do.”

Wesley Misson.jpg

Wesley Misson

Funds that banks serve generally have tens of millions of dollars pledged by investors. However, to avoid making frequent cash calls, managers often secure loans from lenders. “They function like a credit card for the fund,” Johnson said. 

Fund finance loans “enable managers to create a timeline of when they’re going to go to investors,” Johnson added. “Having nuisance capital calls is not something limited partners get excited about.” 

Fund finance lending is characterized by extremely strong asset quality. It frequently generates follow-on deposit and treasury management business, so “banks can end up playing on both sides, being the lenders and the deposit-takers,” Johnson said. 

Not surprisingly, banks have been drawn to the sector. They benefited from the feverish growth that fund finance enjoyed in 2021 and 2022, as capital pledged to investment funds surged to record levels. Indeed, deal flow grew so active it took on an “assembly line” character, Misson said. According to the Edinburgh, Scotland-based asset manager abrdn, fund finance has grown from humble roots following the 2008 financial crisis into a $600 billion industry.  

“When we started our industry organization, we maybe had 10 or 12 banks in the room I would define as active participants,” Johnson said. “Really, throughout the last decade, it’s felt like 10 to 20 new banks have entered the market every year. I can easily rattle off the names of 100 banks that I’ve syndicated loan exposure to in the past couple of years.”

Still, the year 2023 has delivered a number of momentum-slowing body blows. This spring’s banking crisis hurt because each of the three banks that failed in March and April, Silicon Valley, Signature and First Republic, were active participants in the sector.  Increased inflation and tougher capital requirements for banks also took a toll.

While fund finance’s supercharged growth rate has cooled, the market continues to grow, offering plenty of opportunities for lenders that take a more customized approach, Misson said. 

That appears to be Johnson’s and Mascia’s plan for EverBank. 

“We intend to build our brands on the level of expertise our team has,” Johnson said. “We continue to be really excited about where the industry is going. We’re bullish on private equity and the private market in general.”

EverBank isn’t the only bank to sense continued opportunities in the fund finance space. The $189 billion-asset Huntington Bancshares announced the hire of a 10-person fund finance team in June. In May, the $20.3 billion-asset Axos Financial disclosed it had hired Trevor Freeman, one of the founders of Signature Bank’s fund banking group, to serve as its director of fund finance.

Johnson and Mascia joined EverBank several months before the company announced the launch of the fund finance division on Aug. 8. The pair have added six members to their team and “are actively involved in talking to clients,” Johnson said. 

The division has “a handful of loans” in the pipeline and anticipates closing its first deal in October, Johnson said. “We’re getting out there and starting to put money to work,” he added. 

On Tuesday, EverBank officially completed the brand makeover from TIAA. It’s the second time around for EverBank, which served as the company name from 2004 until 2018.