Starting with the basics, Bas Kragten explains that fund finance is a broad term covering borrowing undertaken by private market funds.
“Not everyone might be aware of it, but almost every private market fund borrows at different stages of its life cycle. This may be to facilitate drawdowns during the investment period or to provide additional liquidity and leverage once investor capital has been deployed during the harvesting phase,” he says, adding that fund finance covers a wide set of sub-asset classes with different risk-return characteristics.
“Across these sub-asset classes within the fund finance universe, growth has been rapid and substantial over the years. This growth is a reflection of the rapid growth of the size and number of private market funds launched in the last decade,” he says. He adds that the private market funds typically targeted by fund finance lenders include private equity buyout funds, some venture capital funds, infrastructure debt or equity funds, and private credit funds.
“We are talking about private markets, so there is no hard data on market size, but recent estimates suggest outstanding fund finance globally has reached some USD 1.6 trillion with approximately USD 1.3 trillion of that in subscription line financing or capital call finance,” he says.
Bas Kragten explains that the largest part of the fund finance market represents capital call finance or subscription line finance targeting funds within the investment period. A typical private market fund has a lifespan of around seven to eight years. It starts with the launch of the fund, followed by a three-to-four-year investment period. After that, there is a harvesting period in which value is accumulated and investors are gradually paid down until they are completely made whole, including the expected return.
“Capital call finance is the part of the fund finance universe that provides financing during the three to four years of the investment life cycle, when investors’ allocated capital is gradually drawn down by the General Partner to be invested. At the close of the investment period, ideally the vast majority, or all of the investors’ commitments have been drawn down and the fund is fully invested. Thereafter, the fund seeks to increase the value of those portfolio holdings and will gradually sell the holdings to pay back capital to investors. Capital call finance, or subscription finance, is there to facilitate an efficient drawdown of the investor commitments to the strategy,” he says, adding that there are two unique features that are important for investors.
“The most important feature of the asset class is that the lending we do is fully backed by the uncalled commitments of investors, which means the credit risk of the loans we provide is relatively low. The second important feature is maturity. These loans are effectively working capital facilities. A lot of them have a one-year maturity, but increasingly we are seeing maturities predominantly up to three-year leans in this market,” he says.
He says they have seen a rapid increase in demand from institutional lenders since completing their first transaction in 2018.
“This is driven by the attractiveness of the asset class from an institutional perspective – low credit risk, interesting returns and a short duration. Those are the three main characteristics that make it quite an appealing investment opportunity for institutional investors,” he says.
Asked about the risk-return characteristics and how the asset class compares with other fixed income investments, Bas Kragten says that, compared with public markets, this kind of investment offers a higher spread at a lower credit risk.
“The attractiveness of the asset class comes from both a substantial pickup of return in combination with a better credit quality,” he says.
Asked about investor allocations and whether capital call finance is typically seen as a replacement for public fixed income, Bas Kragten says it varies significantly between investors.
“In reality, it is both a diversifier to the public markets book and is part of a broader trend in which more investment grade private credit opportunities are emerging. Some ten years ago, investors in private market fixed income tended to invest much further up the risk scale than we do here. The investment grade subset of private markets has been getting a lot more attention in the last few years,” he says.
Bas Kragten adds that while capital call financing is the biggest part of this market, there are also other types of fund financing.
“Fund financing where there is no backing from Limited Partners (LP) commitments lending is almost exclusively against the value of the fund. That is a different version of fund finance with varying risk characteristics within that and where risk profiles can range from the lower investment grade spectrum to deep sub-investment grade,” he says. He adds to that, to complete the picture, fund finance also includes various other types, such as General Partner (GP) financing, where leverage is provided to the GP backed by its stake in the fund, or lending to individual LPs backed by the stakes they hold in various funds.
“There has been quite a rapid evolution of that theme in the last few years. For us, we focus predominantly on the capital call finance market, as we feel that it is an appealing and scalable investment opportunity, and one that fits the risk profile of our clients,” he says.
Asked about some of the most common questions he gets when sitting down with existing clients and prospects, Bas Kragten says that it varies a lot.
“In the early days, there was a lot of focus on simply explaining what we do and why these private market funds borrow in the first place. That still happens today, but an increasing number of institutional investors are very knowledgeable about the asset class. That means we can get into questions such as which market we are targeting and how we are underwriting,” he says.
Bas Kragten says another topic that comes up from time to time is how general developments in private markets, such as liquidity issues or a potential increase in default rates in direct lending, could affect the investments they make.
“There are indirect effects, but I would say that, from a credit risk perspective, capital call finance’s exposure to these themes is limited,” he explains.
Asked about the current outlook, Bas Kragten says they have experienced a very favourable fundraising environment for their latest fund since launching in May 2025. “We currently have more than 21 investors committed to the strategy across a broad range of European markets, including the Nordics and the UK. Interest has come from pension funds, insurers and smaller banks looking to work with us on this strategy. In the coming months, we expect our dedicated Capital Call Finance Fund to pass EUR 1 billion in size,” he says.
