Introduction

The FFA 10th Annual European Symposium brought the European fund finance community together on a swelteringly hot 37°C day in London last week. The weather certainly didn’t deter attendees excited for a packed agenda and thought-provoking discussions ahead. With geopolitical uncertainty, a fast-moving regulatory landscape, and an asset class still finding its feet in places, the panels delivered an honest reading of the present moment alongside some genuinely useful signposts for what comes next.

The Reed Smith team of fund finance lawyers had a fantastic day catching up with clients and meeting new faces. Below, our fund finance team has pulled together the headline points, sharpest exchanges, and practical lessons from each session.

We would like to thank everyone who joined us at Vagabond Wines in Monument at our post-conference reception. It was a pleasure to see the day’s conversations carry on long into the evening.

Global private markets update 

Author: Louise Johnston

The market update provided focused on four primary topics – fundraising, deal activity, financing, and liquidity. The overarching message was that private markets have “quietly grown up”, evolving from rapid expansion to a more sophisticated, institutionalised ecosystem.

The fundraising environment has been challenging, though Q1 2026 showed improvement over the prior year. Market bifurcation is the headline: fewer funds are closing, with established managers capturing disproportionate capital. Distributions to paid-in capital (DPI) has become the critical fundraising currency – managers demonstrating real cash returns to LPs are finding it significantly easier to raise subsequent funds. Infrastructure, energy transition, data centres, and natural resources remain in favour due to structural growth tailwinds.

Q1 2026 deal volume was down year-over-year, though average deal size has increased, indicating concentration into fewer, larger, higher-conviction transactions. Capital allocation has shifted towards business services, industrials, and health care, with technology and consumer sectors softer. Strategic acquirers have become increasingly competitive, often paying premiums. AI is fundamentally changing due diligence – buyers now expect to see AI embedded in target operations with tangible value-creation metrics.

Financing markets have improved considerably. Private credit has emerged as a significant force, funding even the largest investments as a genuine alternative to bank syndication. Borrowers sometimes accept a slightly higher cost of capital from private lenders in exchange for execution reliability and certainty of close.

The industry has developed a broad toolkit of liquidity solutions: secondaries, GP-led continuation funds, NAV lending, preferred equity, and CFOs and securitisation structures. IPO markets remain largely out of favour, and distributions to LPs as a share of NAV are depressed. Given that DPI has become the fundraising currency, these liquidity solutions have become permanent infrastructure rather than temporary fixes. Governance expectations now require proactive disclosure of such facilities to LPs.

Private markets have grown up. The liquidity instruments developed in recent years are now permanent features of the ecosystem, and managers must adapt to a landscape where realised returns, liquidity management, and institutional sophistication are the hallmarks of success.

GP perspectives

Author: Lousie Johnston

The panel, which brought together senior leaders from across the private capital industry, described a challenging macro backdrop characterised by higher rates, geopolitical risk, and market uncertainty. Private capital supply remains large and is creating opportunities across infrastructure, energy transition, private credit, and secondaries. Secondaries and continuation strategies were highlighted as particularly attractive. AI adoption is accelerating across firms for modelling and process automation, though the timeline remains uncertain.
Key macro drivers include rate rises, geopolitical uncertainty, AI disruption, and market dislocations. Uncertainty is persistent, with fundraising remaining slower and more selective. However, record dry powder exists across strategies, creating deployment options when dislocations occur.

Fundraising has become harder and slower, with differentiation and track record now seen as critical. Secondaries are a bright spot, as liquidity demand from LPs and GPs faced with holding older portfolios has increased the premium for liquidity. Continuation funds, rated feeders, perpetual and semi-liquid vehicles, and co-investments are expanding the investor base to include insurers, HNW individuals, and retail investors in some markets.

Managers are said to widely use subscription lines and NAV facilities, with GP financing and other bespoke products being identified as growth areas. The consensus among the panellists was that as market needs have grown more sophisticated, banks and other lending partners have responded in kind, structuring bespoke, niche solutions.
There is a proliferation of products, including semi-liquid vehicles, rated feeders, CFO/CFO-like rated structures, perpetual funds, and retail-facing solutions. Managers are expanding into feeders and perpetual formats to tap insurance and long-duration capital. Co-invest demand has surged, with LPs wanting deal-by-deal access and larger equity participations for mutual benefit.

Private credit is highlighted as a multi-year growth area, with the expectation of a more disciplined underwriting environment and better interest coverage dynamics. Panellists emphasised a focus on certain asset classes (aviation, rolling stock, power generation, data centres) and asset-backed financing rather than unsecured consumer risk. Capital solutions (junior and super-senior structures) and bespoke financing address stretched capital structures from recent years.

AI use is recognised as being widespread but currently siloed across teams (modelling, deal screening, reporting). Firms are said to use AI to expedite processes, reduce pain points, and automate modelling, though fully embedded AI operating models are not yet universal. Timeline views diverge: some expect meaningful disruption in five years, while others argue adoption could compress to months. Upstream infrastructure demand (data centres, cooling, compute scale) is seen as a near-term AI-driven opportunity and an investable ecosystem (construction, power, maintenance).

Sophisticated managers run active modelling and weekly liquidity forecasts, with cross-functional task forces (investment, fund admin, ops) recommended. Communication with LPs and transparent reporting on covenant exposure and refinancing schedules are considered essential. Hedging (especially currency) is used heavily on the credit side, while equity assets typically tolerate longer hold horizons. Banks and lenders serve as partners for bespoke structures, though careful alignment with investor comfort is critical to avoid polarising the LP base.

24-month outlook and predictions

The consensus is for continued uncertainty, but adaptive private capital will seek out deployment opportunities. Growth and sophistication in secondaries, continuation funds, and fund-finance solutions are expected to continue. AI and digital infrastructure demand will accelerate, driving investment in compute, data centres, and the associated ecosystem (power, maintenance, materials).

Liquidity solutions across the fund lifecycle 

Author: Yannis Potamias

The discussion focused on the rapid evolution of the fund finance market and the increasingly sophisticated liquidity solutions available to private funds throughout their lifecycle. Financing is no longer viewed as a standalone product but as a strategic tool supporting a fund across fundraising, investment, value creation, and exit.

A key theme was the convergence of traditional fund finance products. While subscription facilities were historically associated with the early stages of a fund and NAV facilities with later stages, these distinctions are becoming less clear. Sponsors are increasingly combining subscription facilities, NAV facilities, hybrid facilities, asset-backed lending, continuation vehicle financing, and secondary market solutions to meet evolving liquidity needs. Financing solutions are now highly bespoke and tailored to the characteristics of each fund, its investor base, and its stage of development.

The panel also highlighted changing expectations of lenders. Borrowers increasingly seek long-term financing partners capable of providing a broad range of products throughout a fund’s lifecycle rather than individual financing solutions. Competition among lenders is therefore driven not only by pricing but also by flexibility, innovation, and structuring expertise.

The discussion examined the growing use of rated feeder structures, particularly by insurance investors seeking more efficient regulatory capital treatment. Although these structures have become more common, market practice remains divided on whether rated feeder commitments should be included in subscription facility borrowing bases. Participants noted that the legal treatment of these structures remains largely untested, creating uncertainty around documentation and risk allocation.

Intercreditor arrangements were identified as an increasingly important consideration where multiple financing products coexist within the same fund structure. While established first-lien and second-lien concepts remain applicable, documentation must be adapted to reflect the unique features of fund finance, particularly where subscription and NAV lenders have different collateral interests and enforcement priorities.

Finally, the discussion concluded that innovation in fund finance is likely to continue, driven by increased institutional participation, demand for liquidity, and the need for more flexible financing structures. As products continue to evolve, legal and commercial structuring will play an increasingly important role in supporting complex, multi-layered financing arrangements.

Private credit: Client, competitor, or co-lender to banks

Author: Priyanka Rajaram

A panel of industry leaders explored the evolving relationship between private credit and the banking sector. This discussion examined whether private credit funds are principally clients of banks, direct competitors, or increasingly collaborative partners – and the consensus was that they are, in many cases, all three simultaneously.

The panellists confirmed that investor appetite for private credit remains robust, with panellists representing both banks and credit funds reporting their busiest quarters to date in terms of lending and fundraising, respectively. However, it was noted that LPs are becoming markedly more selective, focusing on managers with strong platforms, dedicated workout capabilities, and disciplined portfolio monitoring. Notably, investors are no longer passive allocators – they are actively driving discussions around financing strategy and are increasingly shaping the terms and structure of financing arrangements.

The panel explored the drivers behind private credit’s rapid expansion. Post-financial crisis regulatory changes – particularly around liquidity and capital adequacy – made significant categories of lending uneconomical for banks, creating a gap that non-bank lenders and private debt funds have progressively filled. Suppressed investor returns have further accelerated this trend, with LPs seeking enhanced yield through direct lending allocations. Borrowers, meanwhile, are drawn to the speed, flexibility, and single decision-maker model that private credit funds can offer. Panellists stressed that this is not a temporary phenomenon: private credit represents a fundamental and permanent change in credit markets, with funds, direct lending insurers, sovereign wealth funds, and pension funds all now lending directly in the space.

There was a broad consensus that regulatory scrutiny of private credit will intensify, driven by concerns around valuations, leverage, interconnectedness with the banking system (with funds both competing against and borrowing from banks), and limited visibility of credit risk. However, panellists did not anticipate full bank-style capital adequacy requirements, expecting instead targeted transparency and reporting obligations, as, unlike banks, private credit funds do not take deposits and are therefore less susceptible to the type of systemic run risk that underpins bank capital regulations.

Banks retain significant structural advantages – deposit-based cost of capital, syndication capability, and ancillary services such as hedging and advisory – which continue to fortify their central role in fund finance. At the same time, non-bank lenders are competing on speed, flexibility, and pricing, particularly in NAV and asset-backed lending. Perhaps the most notable development is the growth in co-lending structures, including senior and junior tranches and first-out arrangements, which allow banks and private credit managers to deploy complementary capital across the risk spectrum. In a first-out structure, for example, a bank takes down the senior tranche at a reduced spread while the private credit manager retains the subordinated piece with enhanced returns – enabling larger deal sizes and a lower weighted average cost of capital than a traditional unitranche.

Panellists agreed that private credit is a permanent feature of the lending landscape, not a cyclical response to bank retrenchment. While Europe currently lags the United States in scale, the market is expected to converge, albeit with greater structural complexity arising from multi-jurisdictional and multi-currency considerations. The institutions best positioned for the future will be those that can combine the reach and reliability of bank infrastructure with the flexibility and speed of private capital.

NAV finance: Market update and structuring trends 

Author: Shelby Gemmell

The panel focused on how NAV financing has moved from a relatively specialist liquidity tool into a more mainstream part of the private capital financing toolkit. The clearest market driver identified was the continuing pressure on exits and fundraising. With M&A and IPO markets slower, funds are holding assets for longer, extending investment periods, delaying fundraises, and looking for ways to continue supporting portfolio companies while still providing liquidity or distributions to investors. NAV facilities are being used to bridge that gap.

The speakers described a broadening range of use cases. Traditional NAV borrowing remains relevant where a fund needs to support a portfolio company, particularly where company-level debt is expensive or unavailable. Facilities are also being used to fund follow-on investments, bridge extended fundraising periods, refinance or repay subscription-line exposure, support recycling of capital, fund distributions to LPs, and provide liquidity for more concentrated or late-life portfolios. The panellists noted that NAV financing is increasingly seen across different asset classes, including private equity, credit, venture and growth, secondaries, real estate, and family-office style structures.

A major theme was LP perception. Historically, LPs could be sceptical of NAV borrowing, particularly where debt was used to fund distributions. The speakers suggested that this has changed materially. LPs are now more familiar with the product, and some use similar financing tools themselves for liquidity management. The consensus was that proactive communication is critical: sponsors should explain early why the facility is being raised, how proceeds will be used, what it will cost, and how it benefits the fund and investors.

The market is also becoming more differentiated by lender type. Banks, private credit funds, insurance capital, and other non-bank lenders all participate, but with different risk appetites, pricing, advance rates, and structural requirements. Lower-risk, diversified portfolios may attract more bank-style pricing and lower loan-to-value levels, while concentrated or single-asset portfolios tend to require more bespoke underwriting, higher pricing, and stronger lender protections. The speakers also observed more cooperation than competition between banks and private credit providers, including structures where different lenders sit in different parts of the capital stack.

Structurally, NAV facilities remain highly bespoke. Subscription lines and NAV lines can coexist, and the same fund may use different financing tools at different stages of its life. Security packages vary according to portfolio diversification and asset concentration. For diversified portfolios, lenders may rely mainly on fund-level or SPV and capital-account security; for concentrated portfolios, lenders may require asset-specific protections or consents.

Finally, the panel considered stress and enforcement. Defaults or difficult situations do occur, especially where liquidity does not emerge as expected, but the speakers said most situations are handled collaboratively with the GP. The biggest forward-looking concern was the exit environment and whether prolonged holding periods would test newer, more concentrated NAV structures.

Mid-market fund finance: Growing sophistication and opportunity

Author: Karnvir Nanra

The central message of this session was that the mid-market is no longer a narrow or unsophisticated segment of fund finance compared to large-cap deals. The mid-market has become a major and growing part of the market, characterised by increasingly sophisticated sponsors, complex structures, and a broadening range of financing products that mid-market funds and GPs require, particularly bespoke NAV financing, hybrid facilities, GP financing, and co-investment and carry solutions. From a lender perspective, banks and private credit are increasingly providing unique solutions to a mid-market sponsor’s financing needs in a competitive market. 

Mid-market sponsors often have fewer established banking relationships than larger managers and therefore require more bespoke, relationship-driven support. Panellists noted that these sponsors prioritise execution certainty, flexibility, responsiveness, and early strategic advice above just headline pricing. Sponsors who engage early with lender and advisory teams, where structuring, deployment pipeline, and facility sizing can be discussed from the outset, are usually best positioned for successful outcomes.

Lenders view the mid-market as attractive and relationship-driven, enabling broad product engagement across fund finance, private banking, GP financing, and liquidity solutions. Banks are generally willing to provide creative structuring where managers are transparent about their objectives, fundraising plans, investor base, and timing.

Structuring challenges are more pronounced in the mid-market. These include concentrated investor bases, smaller or newer managers, side letter constraints, and security and collateral limitations, particularly in bespoke products with smaller ticket sizes. The panel stressed that mid-market deals are not simpler, as they often require more problem-solving than larger-cap rinse-and-repeat transactions due to scale, emerging manager dynamics, relationships, and fund documentation limitations.

LPAs and side letters can significantly limit borrowing, security, guarantees, and investor-level recourse. The panel emphasised the importance of addressing financing flexibility at the fund formation stage, as amending this to cover financing arrangements in the future may not be possible or otherwise may be a time-consuming process with LPs. Managers should also plan for future optionality across subscription facilities, NAV, GP or partner, and other financing solutions.

The overall consensus among the panel was one of opportunity. To drive efficiencies and execution, it is important to engage lenders and adviser teams early, carefully consider financing in the fund formation documentation, and provide lenders with clear data and plans on the use of proceeds.

Sublines: The second coming?

Author: Olivia Hoh

A panel of leading fund finance practitioners discussed the evolution of subscription line facilities from a traditionally straightforward capital-call bridging tool into a broader, more sophisticated financing product. The key themes emerging from the discussion were:

• Beyond bridging. Subscription facilities are no longer limited to short-term bridging of capital calls. They now encompass term tranches, exit bridges, co-investment bridging, and hybrid structures combining subscription collateral with NAV or asset-based security.
• LPA evolution. Fund documentation is increasingly drafted with future financing flexibility in mind. Sponsors and counsel are, at the outset, considering whether LPAs can support sublines, exit facilities, DPI-related structures, and broader fund finance products over the life of the fund.
• Structural complexity. Fund structures have diversified significantly – evergreen vehicles, wealth-investor products, SMAs, continuation vehicles, CFOs, and rated-note feeders – requiring lenders to conduct more nuanced credit and legal analysis, particularly around enforceability, insolvency, and payment mechanics.
• Syndicate dynamics. Lender syndicates are becoming larger and more diverse. Documentation increasingly addresses transfer, participation, and capital relief trade restrictions, and there is an inherent tension between sponsors’ desire for transparency over their lender base and lenders’ need for capital management flexibility.
• Pricing and risk calibration. The market continues to work through pricing for more complex products. Historically low loss rates make bright-line risk distinctions difficult; the nature of the sponsor, quality of collateral, advance rates, and structural features remain central to credit assessment.
• Investor dialogue. LPs are now more familiar with fund finance products and are generally supportive where there is transparency and a clear rationale.

What does this mean for lenders and sponsors going forward? The panel’s consensus was clear: innovation in subscription finance is unlikely to slow. The next phase will see sponsors deploying multiple, tailored facility structures rather than relying on a single revolving product. Sponsors should engage counsel early to ensure LPAs and side letters accommodate future financing needs. Lenders will need to develop expertise across a broader product set and become comfortable with more complex structures, competing claims, and hybrid collateral pools.

Relationships remain critical post-closing, particularly as investor approvals, advance rates, and amendments arise during the life of a fund. The market is also expected to develop further standardisation around CFOs and hybrid structures as these products mature.

Evergreens under pressure: Sourcing liquidity and optimising the capital structure

Author: William Rees

The panel focused on evergreen fund structures, which have emerged as a significant feature of the fund finance landscape, as managers increasingly look to access capital from individual investors in addition to institutional investors.
 
A key challenge for evergreen fund managers is the mismatch between the liquidity offered to investors through redemption rights and the illiquidity of the underlying fund assets. The panel discussed the tools that managers deploy to manage this risk, which include: (1) using “redemption gates” to limit the amount of investors’ commitments that can be redeemed, which is often set at 5% per quarter before the fund is “gated” until the next quarter; (2) maintaining “liquidity pockets”, whereby funds maintain a small portion of cash or liquid assets in order to meet redemption requests from investors; and (3) using credit facilities, both for investment purposes and to meet redemption requests. These strategies mitigate the risk of managers needing to conduct a fire sale of investments in order to meet redemption requests.

Debt facilities: Lender considerations

Financings to evergreen funds are typically structured on an asset-backed or NAV basis, since there is generally no pool of undrawn capital commitments for lenders to take as security. Lenders therefore look for high-quality underlying assets, portfolio diversity, and managers who have a long-term track record across multiple economic cycles.

The panellists noted a variance in the European and U.S. markets of lender capacity for these facilities, with the European market seeing sponsors struggle to source liquidity, and the U.S. market seeing a highly competitive lender environment with increased competition from private credit lenders. A challenge for lender appetite is that these facilities tend to have longer tenors and lower utilisation levels compared with financings for closed-ended funds.

Hedging strategies

Hedging serves a dual purpose for evergreen funds, managing both asset-level and investor-level foreign exchange risk. The panellists noted that banks are generally inclined to offer more conservative hedging terms for evergreen structures than for closed-ended structures – for example, imposing shorter maximum tenors, lower credit limits, and more restrictive terms. However, managers who can demonstrate the robustness of their liquidity buffers and gating provisions, and who maintain broader banking relationships with the hedging provider, are increasingly able to access more favourable credit terms.

Redemptions: Europe and the United States

The panel discussed the high-profile investor redemptions that have featured in the financial press recently. The consensus was that the U.S. market was more affected by redemption requests than the European market, which may be a result of the U.S. market seeing a higher portion of retail investors investing in these fund structures, as opposed to a higher portion of sophisticated high-net-worth individual investors in the European markets. The sentiment was that, notwithstanding press attention, levels of redemptions are generally not exceeding what managers have already stress-tested for, and managers haven’t had to resort to selling assets to meet redemption requests. However, if redemption levels remain elevated, there is a question over whether funds will continue to have the ability to meet requests, whether through liquidity pockets or existing debt capacity.

Capital constraints: How regulation is shaping fund finance

Author: Mohamed Khashaba

The regulatory landscape for the European funds finance market is undergoing a significant transformation. With the Capital Requirements Regulation III (CRR3) now in effect in the EU and Basel 3.1 taking effect in the UK from 1 January 2025, the overriding direction of travel is towards greater capitalisation of banks. For European banks specifically, the European Central Bank is driving two key themes: transparency in the financial system and increased standardisation. In practice, this means that banks that have historically relied on advanced internal rating models to determine capital allocations are facing mounting pressure to move towards the standardised approach, with fixed regulatory-prescribed risk weights. Given the limited default data in the fund finance space, redeveloping internal models to a high degree of robustness is proving highly challenging.

This regulatory shift is not occurring on a level playing field. Banks operating across Asia, the United States, and Europe face different regulatory requirements. European banks are under particular pressure and are increasingly turning to mitigation tools such as ratings, insurance, securitisation, and risk transfers. As a natural consequence of higher capital requirements making lending more expensive from a returns perspective, banks are also changing their behaviour and are becoming more relationship-driven, focusing their capital allocations towards key clients, and seeking wider fee income opportunities to compensate for reduced profitability. 

Insurance as a capital solution

The insurance market has responded directly to these pressures. Financial guarantee insurance products, such as non-payment insurance policies, are seeing increased demand from banks seeking to resolve risk capital pinch-points in their portfolios. In some cases, the implementation of new capital rules has acted as a catalyst, driving more interest in insurance products. Capital call portfolios, given their large notional size and the regulatory capital they consume, have emerged as a primary focus area because they offer the most efficient price point for insurance solutions relative to the capital relief achieved, reflecting their high-quality credit profile.

Developing ratings requirements

The ratings landscape has also evolved significantly. External ratings have become necessary, not because of concerns about credit quality but because of the changing regulatory requirements. Two developments have been key. First, the increased risk weights produced by the implementation of Basel 3, including through credit conversion factor adjustments, and second, the European Banking Authority’s February 2025 clarification that private ratings cannot be used for regulatory capital purposes. This has redirected attention towards subscription ratings, which can preserve the confidentiality required by sponsors while satisfying regulatory requirements. Unlike private ratings, subscription ratings carry the liability framework and regulatory oversight that regulators require, and, unlike private ratings, they fall within the sample used to map ratings to risk weights under CRR3.

External ratings also offer a structural advantage over internal models. Banks developing internal models must conform to strict regulatory guidelines requiring statistical robustness, which becomes challenging for asset classes with few defaults, such as in the funds finance market. Rating agencies, relatively less constrained by such regulatory guidelines, can employ fundamental analytical approaches that remain connected to the performance of the underlying asset class. Furthermore, when the output floor is fully implemented, it will override internal model outputs, and external ratings will become the only mechanism to modulate that floor downward, meaning banks with internal models may eventually require external ratings simply to restore the value of their internal models.

Looking ahead

The market is far from reaching a new stable situation. Regulatory changes continue to affect other areas. For example, the EBA’s clarification on private ratings has already prompted the UK insurance regulator to restrict the use of private ratings by insurers, creating further domino effects. Each regulatory shift alters competitive dynamics, cost of funding, and ultimately the terms on which banks can offer products. The optimal combination of internal models, external ratings, insurance, and other tools remains a process of discovery, and the industry is in a period of active experimentation before a new settled framework emerges.

Continuation vehicles: Trends and financing options

Author: Mac Campbell

Panellists traced the origins of CVs back to the global financial crisis, when they were primarily used to warehouse difficult-to-sell assets approaching the end of a fund’s life. The market has since undergone a significant transformation. CVs are now widely regarded as an effective portfolio management tool rather than a response to underperformance. A key driver of this shift has been the rise of single-asset CVs, which require strong historic performance, a credible value creation plan, and conviction in the GP’s ability to execute. One panellist estimated that CVs now represent approximately 5–10% of fundraising activity and are firmly embedded in the fundraising ecosystem.

There was a broad consensus around the structural appeal of CVs for all stakeholders. GPs benefit from continued compounding with high-performing assets; existing LPs gain access to liquidity while retaining the option to reinvest; new investors can access proven assets with strong track records; and management teams enjoy continuity of sponsor partnership. Panellists observed that the CV market has demonstrated resilience through multiple macroeconomic cycles, reinforcing its reliability as an exit route compared to more volatile alternatives such as IPOs.

While the CV market has been predominantly equity and buyout-driven, panellists noted a clear expansion into other asset classes. Infrastructure was highlighted as a particularly natural fit given its long-duration, cash-flow-generating characteristics. Multi-strategy CVs, aggregating assets across different fund strategies within a single vehicle, are also emerging as an increasingly sophisticated option for sponsors.

The panel explored the range of financing options available, including subscription-line facilities, hybrid structures, and NAV-based lending. Lenders face particular complexity in CV financing due to the simultaneous fundraising, asset sale, and investment activity that characterises these transactions. A significant focus of the discussion concerned the alignment of interest between GPs and lenders, and the importance of robust valuation processes involving third-party valuation specialists.

LP attitudes have shifted markedly from scepticism to broadly neutral or positive, with many CV investors now proactively seeking financing to optimise returns, it being noted that secondary focused funds generally account for the larger holds in CVs. On the lender side, the market remains bank-led but concentrated, with increased competition driving pricing and terms compression. Panellists suggested that rated feeders for diversified CVs may represent the next phase of market development.

NAV lending: Lessons from the ABL and CLO markets

Author: Helen Penwill

This panel, featuring Reed Smith lawyer Mark Drury, explored the growing convergence between NAV lending to credit funds and the CLO and securitisation market. Panellists examined how established CLO techniques are being adopted within fund finance, and considered the regulatory, structural, and commercial implications. The key themes emerging from the discussion were:

Adoption of CLO techniques in NAV lending

• NAV lending to credit funds has moved from niche to mainstream, with bank lenders increasingly adopting structural features borrowed from the CLO market, including eligibility criteria, concentration tests, over-collateralisation and interest coverage tests, and credit tranching.
• Investors familiar with CLOs are now asking the same questions of NAV facilities and expecting comparable structural protections around transparency, portfolio constraints, and manager discretion.
• Banks that have most successfully entered this space have merged expertise from traditional lending and structured finance teams.

Securitisation regulation

• A key regulatory consideration is whether a tranched loan to a credit fund constitutes a securitisation under UK and EU securitisation regulations. Falling within scope triggers compliance with risk retention rules and enhanced transparency obligations.
• Identifying the appropriate risk retention holder within fund structures can give rise to complex commercial negotiations, though the CLO market offers useful precedents.

Flexibility vs rigidity

• A central tension is the trade-off between the flexibility of traditional fund finance and the rigidity of CLO structures. CLO documentation is heavily prescriptive, limiting managers’ ability to react to market events, whereas fund finance retains greater scope for bespoke, solutions-driven approaches.

Transparency, reporting, and double pledging

• There is a transparency gap in fund finance compared to the CLO market. Improving reporting standards may help attract a wider investor base and reduce pricing.
• Double pledging remains a practical concern – the absence of public registries in many jurisdictions means lenders rely heavily on due diligence and contractual protections.

NAV facilities will not become CLOs, but convergence between the two markets is expected to continue. Rather than one displacing the other, both markets are likely to coexist, each serving different investor needs.

As deal sizes grow, non-bank lenders may play an increasingly important role, particularly those willing to take subordinated positions in exchange for higher coupons. Panellists characterised the current environment as an exciting period of innovation, marked by cross-pollination between fund finance and structured finance.

At the same time, execution remains achievable. With proper upfront planning, well-structured deals can close within 12 weeks.