Authors
Introduction
The Deal Catalyst Fund Finance Europe 2026 conference has now concluded, and what a day it was. As we tee up this edition of our newsletter, we are delighted to reflect on another outstanding gathering of Europe’s fund finance community. The conference delivered a full course of timely market insight, from a European market snapshot and the evolving dynamics between private equity and private credit sponsors, to the regulatory overlay shaping our industry and the critical conversations around human capital and the next generation of fund finance professionals.
I had the pleasure of moderating a panel on Non-bank Capital and the Rise of Institutional Lenders in Europe, and I am delighted to say it proved an engaging session. We explored the now-permanent role of institutional capital in fund finance, examining risk appetite, committed versus uncommitted structures, tenor considerations, and the co-lending and syndication models emerging across the continent – alongside the very real challenges non-banks face around regulation, origination talent, and servicing.
We were thrilled to welcome so many of you to our sponsor stand, where our golf putting challenge proved a popular attraction. Congratulations to our winners, and we hope those Fortnum & Mason hampers are being enjoyed.
Whether you sank a hole in one or simply enjoyed a friendly roll along the green, it was wonderful to see you there.
The summaries of each session appear below. We hope you find them useful as you navigate the year ahead. Thank you to all who joined us – it is now time to head back to the clubhouse for another year, but the deals continue, and we look forward to working with many of you in the months to come and to seeing you again at next year’s conference.
Leon Stephenson – Chair of the Global Fund Finance Group
Europe Market Snapshot in 2025: Issuance, Terms and Lender Breadth
The first session of the day kicked off with panellists delivering a careful appraisal of the market in 2025 and how much lenders look at sponsor valuations and other risks. Valuations are a hot topic in fund finance, and the panellists discussed the challenge of balancing between valuations being too optimistic and getting it right. There was general agreement on the importance of liquidity, due diligence, underlying characteristics, leverage, secondaries, default, and recovery.
Given the unpredictability of valuations, the key takeaways were to focus on stress testing, not to take sponsor valuations at face value, actively engage with issuers, have strong underwriters, and examine the performance and track record of fund managers.
The panel also reflected on a changing investor and borrower base, with an increase in non-institutional investors and non-bank lenders entering the market. The sentiment was that more flexible underwriting criteria come with more covenants and concentration limits.
The panel assessed the liquidity landscape, comparing bank-led and institutional-led deals. They shared their observations of an increasing appetite for open, liquid funds and evergreen structures from investors and fund managers. They also noted the rise of non-listed business development companies in response to lower returns and a more fragile macroeconomic backdrop, together with the necessity to extract value. This changing environment brings with it the need to manage expectations around product design and risk, and to carefully tailor risk and NAV facilities.
Overall, the panel were in sync on the need to be cautious about optimistic valuations, conduct thorough due diligence, get things right from the outset, and continually educate new market participants.
When considering the current climate and outlook for the year ahead, the panel’s view was mixed: where there are disruptions and challenges, there will also be opportunities; the odds of higher costs and risks might see a demand for shorter facility duration, together with opportunities for continuation funds; and how things might turn out is yet to be seen.
Private Equity vs Private Credit: Sponsor Behavior, Product Fit & the Evolution of Lender Appetite
The second session of the day, opened with the moderator asking whether current trends reflected a structural shift or a fund cycle. Panellists responded with expert viewpoints: that private equity and private credit work seamlessly together; that there are similarities in the products used; that fund finance in private credit continues to grow, using more warehouse solutions; that liquidity provision tools and innovation are on the rise; and that, in the main, fund finance is a solution for liquidity.
When choosing structures, the panel debated purpose, use case, motivation, and expected outcomes. They considered differences and similarities between the United States and Europe. The United States is at a more mature stage, with more flexible documentation, more creative product structuring, and higher growth. Europe, by contrast, is more regulated and diverse in terms of currencies, flows, and prices.
The panel also recognised the abundance of options for borrowers, with capital available from private equity and private credit, along with the benefits of mixed funds. From a ratings perspective, the more cautious view focused on the challenges involved in rating transactions and on what a portfolio might look like once live. The panel discussion also considered the roles of discipline, disruption, and diversity.
Non-bank Capital and the Rise of Institutional Lenders in Europe
The growth of institutional capital in European fund finance reflects a convergence of supply and demand dynamics. On the supply side, Basel III liquidity requirements and the US regional banking crisis have constrained traditional bank lending capacity, creating space for institutional investors, including insurance companies, pension funds, and family offices, to fill the gap. These investors are drawn to fund finance as a high-quality asset class with an established track record, attractive risk-adjusted spreads, and the ability to deploy capital at scale. The introduction of rating agency methodologies for certain fund finance products has further unlocked access for ratings-dependent institutional capital, whilst investors new to the space typically enter through lower-risk instruments such as term tranche subscription lines before progressing down the risk spectrum. On the demand side, GPs have welcomed the diversification of funding sources beyond traditional bank relationships, particularly given that non-bank lenders are able to offer longer-term financing solutions and do not require the reciprocal deal flow that often accompanies bank relationships.
Documentation practices and operational considerations are evolving in tandem with the market’s structural development. Panellists emphasised the importance of future-proofing facility documentation from the outset, building in flexibility for additional financing, syndication, and information-sharing arrangements to accommodate the increasingly diverse lender base. Transparency as to ultimate debt ownership and the exercise of voting rights remains a key concern for GPs, particularly as trust is still being established with non-bank participants. The current market is characterised by significant liquidity, with non-bank lenders now sourcing opportunities both through bank partnerships and direct GP relationships. Whilst some caution persists around how non-bank lenders may behave in stressed scenarios, the prevailing view is that these capital providers complement rather than compete with traditional banks, offering product innovation, bespoke structuring, and term flexibility that the bank market struggles to match. Key takeaways from the panel included the importance of documentation evolving, continued product development, and the need for GPs to consider liquidity requirements across the full fund lifecycle.
GP Financing – Alternative Ways of Raising Leverage
The key takeaway from this panel discussion was that GP support solutions are primarily structured around the needs, set-up, and administrative processes of the asset manager. Lenders then need to work with the manager to understand the framework and set out their credit needs in order to provide the funding solution, with an overall mindset of not over-engineering the financing and understanding the required flexibility. GP support solutions can vary significantly, with the main offerings generally (1) institutional bank-led funding across a large collateral pool, focusing more on fee- and cash-paying set-ups, and (2) private credit-led preferred equity arrangements, focusing more on niche set-ups and obtaining a higher return.
A number of other points were stressed during the session, including the fact that GP financing is sometimes delinked from financings of the managed funds – sometimes these facilities are in place before the relevant fund facilities. Fundraising cyclicality means GPs can turn to GP financing to boost capacity and plug shortfalls, although, depending on the collateral pool, lenders should be conscious of funding blind pools and understand the use of proceeds. Lenders should also consider the underlying investment base of the manager (to understand why the GP solution is being requested on the sought-after terms, but also to then consider the lifecycle of the funding).
The panellists also noted that this finance class is becoming more popular across the spectrum of funders, with more options available to managers than ever before.
It is worth noting that the Reed Smith team are currently assisting with a number of active mandates involving the panellists and fully agree with the key considerations raised.
The Regulatory Overlay: Practical Impacts on Fund Finance
The regulatory landscape governing fund finance is becoming increasingly complex, with rated feeder structures – even those not traditionally characterised as credit – now carrying a credit element and a growing reliance on securitisation frameworks across the market. The EU Securitisation Regulation continues to evolve, presenting navigation challenges for buy-side participants, sell-side institutions, and GPs alike. In particular, the sole purpose test remains a focal point, with material implications for trustees and fund structures seeking to operate within the regulatory perimeter. A clear theme emerged: the need for education and transparency across all market participants remains critical as these frameworks develop.
Looking ahead, market participants should pay close attention to CRD VI, which comes into force in January 2027. Article 21c is of particular significance, introducing requirements that will affect cross-border lending and banking activities. Importantly, the panel emphasised that compliance with these incoming regulations will not be a uniform exercise – the application of CRD VI will vary depending on structure, jurisdiction, and counterparty, requiring a tailored approach rather than standardised solutions. As the regulatory overlay deepens, fund finance practitioners will need to engage proactively with counsel and counterparties to ensure structures remain fit for purpose.
The Middle Market - The Innovation Driver
Defining the middle market
The middle market continues to establish itself as a principal driver of innovation in fund finance. Panellists broadly coalesced around a working definition of “middle market” as funds in the range of approximately $500 million to $5 billion, with $500 million serving as a useful lower bound. Pemberton illustrated the scale of institutional appetite in this space: the firm manages $30 billion in assets under management, with $3 billion–4 billion specifically dedicated to GP financing solutions for private equity funds. This level of dedicated capital underscores the maturation of bespoke fund finance as a distinct asset class.
Expanding financing tools and CLO momentum
A recurring theme was the expansion of available financing tools. NAV lending thresholds, historically anchored around 20%, are being pushed toward 30% in certain market segments, reflecting both increased lender comfort and sponsor demand for flexibility. Simultaneously, the panel observed growing momentum behind middle-market CLOs as an alternative funding mechanism. Recent transactions, including Aries’ $400 million CLO, demonstrated competitive funding costs of approximately 1.45% for sterling tranches and just over 2% for euro tranches. Panellists noted that CLO technology offers meaningful advantages: long-term capital, non-mark-to-market treatment, embedded leverage, and diversification benefits, building on a proven track record in BSL and US middle-market lending.
Pricing, liquidity, and new capital sources
Pricing dynamics featured prominently in the discussion. The sub-line space has experienced notable compression due to abundant liquidity, though sponsors continue to prioritise operational fit, transparency, and relationship quality alongside headline pricing. For longer-tenor facilities exceeding five years, supply remains more constrained and pricing correspondingly higher. The panel emphasised that structure, covenant flexibility, and execution certainty often outweigh marginal pricing differences when sponsors select financing partners. New capital sources, including insurance companies, pension funds, and private credit platforms, are materially expanding liquidity and enabling larger ticket sizes, in some cases up to $1 billion with co-investor or LP participation.
Current challenges and the case for bespoke structuring
The panel also addressed the challenges facing mid-market sponsors in the current environment. Slower exits and extended holding periods, now averaging around seven years, have created a cohort of 2015–2020 vintage funds holding concentrated portfolios of three to six assets. This dynamic is driving increased use of continuation vehicles and hybrid structures. LP bases have become more concentrated due to fundraising headwinds, producing varied outcomes for subscription line facilities. Panellists stressed the importance of bespoke structuring: solutions are increasingly designed around a sponsor’s specific business plan, LP composition, and lifecycle objectives rather than standardised templates. Maintaining transparent communication with investors remains critical to sustaining LP sentiment and supporting future capital raises.
Human Capital in Fund Finance: Building, Retaining, and Growing the Next Generation
As the fund finance market continues to evolve, the panel emphasised that building and retaining talent requires a deliberate shift in how professionals approach skill development. Fluency in market terminology remains foundational, but practitioners must now think beyond the traditional subscription line to understand the full suite of products available and how they may be deployed across different transaction structures. The ability to operate as part of a broader ecosystem – collaborating across disciplines and understanding the interconnected nature of fund finance – was identified as increasingly critical, particularly in an environment characterised by ongoing challenges in capital raising and the demand for solutions-oriented structuring.
Panellists underscored that success in this market ultimately depends on having the right people and cultivating the right relationships. Versatility, varied experience, and the capacity to absorb learnings and apply them with flexibility and adaptability were highlighted as defining attributes of high-performing professionals. Equally important is the role of culture and mentorship in developing the next generation: firms that foster a supportive environment – one that encourages learning rather than attributing blame – are better positioned to attract and retain talent. Looking ahead, the consensus was clear: professionals should seek to develop a comprehensive understanding of fund finance products before specialising and should remain open to taking opportunities as they arise in this dynamic and growing market.
Engineering Liquidity: The Expansion of Secondaries and Structured Solutions in Fund Finance
Market growth
The secondaries and structured solutions panel underscored the continued expansion of the fund finance market, with the liquid funds segment now standing at approximately $1.7 trillion and reaching $2.3 trillion when semi-liquid vehicles, NAV facilities, and unfunded commitments are included. This expansion, coupled with a private equity AUM turnover ratio of only 2–3%, is driving sustained demand for liquidity solutions. Dedicated buyers with more appropriate costs of capital are now providing liquidity to both vehicles and investors, marking a structural shift in the market.
Product mix and investor demand
The panel explored where investor demand is currently concentrated, noting that demand among insurers, pension funds, and institutions is particularly strong for rated feeder structures and collateralised fund obligations. Rated feeders typically allocate 80% to rated notes and 20% to residual equity, enabling insurers to optimise capital structures and regulatory risk-weightings whilst accessing private credit premia. US insurers represent the primary buyer universe, driven by favourable regulatory treatment, whereas Solvency II in Europe creates a different dynamic. Secondary fund structures aggregate 30–40 underlying funds into portfolios of 2,000–3,000 loans, delivering shorter duration, improved visibility, and reduced concentration risk.
Key risks
Panellists identified several risk factors that market participants should monitor, including liquidity mismatch, underlying asset quality, leverage profiles, and documentation gaps that may impede transparency. Ratings methodologies vary by structure: private credit funds are evaluated using CLO-equivalent analytics, whilst CFOs and secondaries rely on cash-flow projection engines to compute NPV and derive advance rates. GP exposure is assessed through transaction-structure analysis, with high GP concentration typically implying elevated risk.
Continuation vehicles
The discussion turned to GP-led continuation vehicles, which have grown materially since the beginning of this year, trading at modest discounts as the market becomes more competitive. These structures shorten the J-curve and deliver early cash yield, appealing to insurance investors, whilst enabling GPs to raise follow-on capital and attract new LPs through visibility into existing holdings. Typical structures feature four-year investment periods and seven-year fund terms. Perceived conflicts arising from GPs retaining economics on both sides of a transaction are mitigated through brokered auctions, fairness opinions, advisory board and LP approvals, and transparent communication.
Outlook
Looking ahead, panellists observed that private credit and secondaries continue to expand, with asset-class growth running at approximately 15% per annum. Innovation is being driven by institutional evergreen structures, separately managed accounts, and funds-of-one, which now account for around a third of large investor fundraising. Market participants reported 45 deals and over $6 billion deployed, reflecting the depth and maturity of this segment of the fund finance market.
Authors