The intersection of fund finance & securitisation
19 June 2025
While the cross over of securitisation techniques and fund finance has been a point of discussion for market participants for a number of years now, activity in this space has been slow until recently. The execution of a few novel fund finance securitisations on both sides of the Atlantic however, coupled with the growing liquidity and structural needs of private funds, regulatory pressures on banks, the rise of private credit and growing investor appetite now provide an ecosystem where the securitisation of fund finance receivables may assist both fund finance and structured finance participants to meet their strategic objectives.
Significant market focus in respect of securitisation and fund finance has been on securitisation of capital call facilities (though there are other areas of fund finance that are of relevance). Capital call facilities (also known as subscription line facilities) are short term lines of credit provided to private equity funds (or similar investment vehicles) to finance investments or expenses before drawing committed capital from its investors (i.e. its limited partners or LPs). Typically these are provided by banks and other large financial institutions. The uncalled capital commitments constitute the collateral for such facilities and consequently creditworthiness is determined on the strength of the LP commitments (thus analysing the quality of the largest LPs) rather than the fund’s assets. Such facilities are then repaid using the proceeds from capital calls made to the fund’s LPs (typically within a short period after the loan is drawn). Capital call facilities are meant to assist funds with quick access to cash, enabling faster deal execution and smoother capital management.
In this article we will provide a brief overview of the most common methods of securitising receivables, the regulatory landscape and the benefits of fund finance securitisations.
Methods of securitisation
Though securitisations may take many different structural and legal forms, traditionally in the European market they are structured as a “true sale” transfer of a portfolio of assets originated or previously acquired by the originating institution (which will often be a financial institution but may also be a corporate or fund) to a bankruptcy remote special purpose vehicle (an “SPV”) with the SPV issuing tranched securities either to private investors (commonly known as a “private” securitisation) or in the public capital markets on a more widely syndicated basis (thus a “public securitisation”). The proceeds of such issuance are used by SPV to acquire such portfolio. Securitisations may also be structured for asset risk to shift from the originating institution synthetically, typically by means of a credit protection agreement as opposed to a sale.
In a traditional “true sale” securitisation model, typically the institution acting as originator will have used corporate debt and/or equity to originate (or purchase from a third party) the relevant assets which it will be holding at such time on its balance sheet and such assets will be sold to the SPV upon the closing of the securitisation.
Depending on the size of the asset pool and the type of asset concerned as well as market conditions, such assets may be securitised through a public issuance (of which as at the date of this article, there have been none in respect of fund finance receivables in the UK). Alternatively, originators may engage in private transactions, that is with one or more (senior and/or mezzanine) lenders with junior funding provided by the originator. Whereas traditionally originators securitised existing pools (in what is known as a “warehouse” transactions), in recent years other private funding securitisation models are have become common such as “wet funding” and “forward flow” transactions (oç indeed, securitisations that combine two or more of these methods). In forward flow transactions the SPV acquires the assets immediately upon origination on an ongoing basis and in wet funded transactions the lenders provide the financing in advance for the purposes of the asset being originated. The latter methods dovetail quite harmoniously with the nature of subscription line facilities both in terms of execution and duration. In addition, private securitisations can be static or revolving (i.e. principal from the underlying assets is used to fund the acquisition of additional assets as opposed to repay principal to the securitisation lenders if the securitisation is not in amortisation) which again may be aligned to the fund finance market and in particular capital facilities (given they typically have short term maturities).
While there have only been a limited number of fund finance securitisations in the UK so far, we have already seen transactions that have securitised both an original lender’s participation in a capital call facilities and also a fund’s exposures to investor capital calls through the above methods. In addition lenders have started using fully retained securitisations of capital call facilities for balance sheet management purposes. Thus while the market is still in its inaugural phases, there is an exciting number of deals and structures that are being developed.
Considerations for using securitisation for fund finance participants and investors
For originators, securitisations can be a useful tool in extracting value from their existing portfolios. Firstly, given securitised assets are derecognised from the balance sheet of the originator, these transactions can very helpful in the originator’s balance sheet management (which in turn can allow the originator to scale its debt origination operations further). In addition, the originator may benefit from regulatory capital relief, again freeing up capital. Other benefits may include a reduction in respect of the originator’s funding costs vis a vis equity or vanilla debt, immediate cost-effective liquidity and further diversification of its funding sources. Depending on how the transaction is structured (for example what is agreed commercially in respect of the concentration limits and eligibility criteria of the pool between the originator and the lenders) it can also be a help in the credit risk management of the originator in reducing its own exposure and concentration risks in respect of the assets. Originators also benefit from the economic upside of the assets (for example via servicing fees or any excess spread).
For investors, investing in securitisations of fund finance receivables allows them to gain indirect access to the fund finance market without needing to set up their own origination platforms. Investors may also find that securitisations backed by such assets provide a high quality credit exposure given that historically the default rates on LP capital calls are low. For traditional ABS investors, it also allows them to diversify their investment strategy by investing in a new asset class (that may not be as affected by macroeconomic risks as, for example, consumer ABS).
There are however certain nuances to the fund finance space that may act as barriers to this market. Transparency, which is always a key consideration for investors, may not actually be available or permissible (for example key metrics or historic data are unavailable compared to other typical asset classes and GPs in general are sensitive about the provision of information about them and their investors) to the extent that a typical ABS investor expects currently. In addition originators may also have to overcome certain other structural legal issues associated with this asset class such as any transferability restrictions in the underlying documentation. The market is also still evolving and there are no clear market precedents at the moment as to what are largely acceptable key commercial, asset pool and/or legal terms (such as eligibility criteria for example). In each case these are likely to develop over time given the overall attractiveness of the asset class.
Regulatory Considerations
In order for a transaction to constitute a “securitisation” under the respective frameworks in the EU and the UK, namely the EU Securitisation Regulation1 and the UK Securitisation Framework2 (which are currently largely aligned in this respect), a transaction must meet certain conditions and if it does so then it will be subject to initial and ongoing obligations. While the full regulatory regime is nuanced and outside the scope of this article, the regulations define as “securitisation” any transaction or scheme where “the credit risk associated with an exposure or a pool of exposures is tranched, having all of the following characteristics:
payments in the transaction or scheme are dependent upon the performance of the exposure or of the pool of exposures;
the subordination of tranches determines the distribution of losses during the ongoing life of the transaction or scheme; and
the transaction or scheme does not create certain exposures.” 3
Securitisation of existing securitisation positions (i.e. re-securitisation) is also prohibited.
Both the EU Securitisation Regulation and the UK Securitisation Framework place a number of obligations on “originators”, sponsors, SSPEs (that is SPVs) and institutional investors. Some of those core obligations include:
Risk retention - the retention of at least 5% of net economic interest in the securitisation by the “originator”, the original lender or the sponsor for the life of the transaction through a variety of retention methods (most commonly through the retention of the first loss tranche). It is important to note that the regulations restrict which entity can act as “originator” within its regulatory meaning, requiring, amongst other things that such entity has economic substance and that its “sole purpose” is not to securitise exposures;
Transparency - certain transparency requirements whereby the SPV and/or the originator must make available, amongst other things, asset level and securitisation level reports in prescribed formats on at least a quarterly basis along with reporting on significant events; and
Due Diligence - due diligence requirements placed on investors which broadly require investors to carry out a due diligence exercise on the securitised portfolio and the securitisation structure as whole together with a verification of the credit-granting standards and processes of the originator.
Concluding remarks
Securitisation does appear to be a natural next step to the evolution of fund finance with the potential to unlock new opportunities for market participants. While this space is currently evolving, and has attracted considerable interest from market participants, it is still very much in its inaugural phases and it remains to be seen whether fund finance related receivables become a more standard securitisation asset class. At Ashurst we have seen continued growing interest from market participants in this area and have recently advised the investors on a novel private forward flow securitisation of subscription lines to mid-market private equity firms.
- EU Securitisation Regulation means Regulation (EU) 2017/1402 (as amended)
- UK Securitisation Framework means the UK Securitisation Regulations 2024 (SI 2024/102) (as amended), the Securitisation Part of the rulebook of published policy of the Prudential Regulation Authority and the securitisation sourcebook of the handbook of rules and guidance adopted by the Financial Conduct Authority, together with the relevant provisions of the UK’s Financial Services and Markets Act 2000 (as amended)
- Exposures which possess all of the characteristics listed in Article 147(8) of Regulation (EU) No 575/2013
