Marcus Emadi | Director at Turning Point Capital
CONTENTS
What Is Fund Finance?
Fund finance refers to fund-level lending provided to private market vehicles such as private equity, private credit, infrastructure, and real estate funds. Two primary instruments dominate this space:
- Subscription Line Facilities (Capital Call Lines)
- NAV-Backed Loans
Subscription lines are typically secured against investor commitments, offering short-dated, revolving credit with investment-grade risk characteristics. NAV loans, by contrast, are secured against underlying portfolio assets and carry higher return potential with longer duration and higher risk.
Why Fund Finance Now?
Historically controlled by global banks, the fund finance market is now evolving. Post-2023 banking stress and balance sheet constraints have created a supply-demand imbalance. Institutional capital is stepping in to fill the gap—on better pricing and stronger terms.
Margins on investment-grade subscription lines have widened by over 50 basis points since early 2022. Combine this with low correlation to public markets and a near-zero historical loss rate, and the opportunity becomes clear.
The Role of Subscription Lines in a Fund’s Strategy
General Partners (GPs) rely on subscription facilities to manage liquidity, smooth capital calls, and maintain flexibility. These lines allow GPs to act quickly on deals without issuing immediate capital calls—streamlining operations and enhancing investor experience.
As a result, subscription lines are now standard in most private market fund structures.
Why It Matters for LPs
For Limited Partners (LPs), subscription lines reduce the need to hold capital in low-yielding, liquid assets while waiting for unpredictable drawdowns. This leads to more strategic cashflow management and improved overall portfolio efficiency.
Institutional Allocations and Capital Efficiency
Fund finance offers a compelling alternative to short-duration credit or sovereign bonds. These instruments typically carry low capital charges (estimated SCR of 2–3%) and offer enhanced yields without compromising credit quality.
Floating-rate structures and embedded rate floors provide additional protection in volatile rate environments—making fund finance a valuable piece in the institutional yield toolkit.
Looking Ahead
Demand for fund-level financing continues to rise while traditional supply channels remain constrained. This creates an opening for institutional investors to access a previously bank-dominated market—now with better structural terms and improved returns.
At Turning Point Capital, we believe the next evolution of fund finance will be led not by banks, but by sophisticated institutional capital that understands liquidity, structural risk, and credit fundamentals.
Frequently Asked Questions (FAQs)
What is fund finance?
Fund finance refers to loans made at the fund level to private market funds such as private equity, private credit, infrastructure, and real estate funds. It includes subscription lines and NAV-based loans, offering liquidity and portfolio flexibility.
What is a subscription line facility?
A subscription line (or capital call facility) is a short-term loan secured against limited partners’ committed capital. It allows general partners to act quickly without drawing investor capital immediately.
What is a NAV loan in fund finance?
AV loans are secured by the fund’s underlying portfolio assets. They offer longer durations and higher return potential but carry a higher risk profile than subscription lines.
Why is fund finance attractive for institutional investors?
Institutional investors are drawn to fund finance for its low volatility, enhanced yield, and strong capital efficiency. These loans offer exposure to private markets with investment-grade characteristics and minimal historical loss rates.
How does fund finance improve capital efficiency?
Because of their short tenor, high credit quality, and floating rates, fund finance instruments like subscription lines often require lower capital charges—making them highly efficient for insurers and asset managers managing regulatory capital.
