Fund Finance Q2 market update reinforced the central role of Term Loans in subscription financing. Once considered niche, Term Loans have now become a permanent feature, offering GPs flexible, cost-efficient capital while reducing overall facility pricing when paired with revolving credit facilities (RCFs). Their adoption has been driven by institutional capital, which provides deeper liquidity, higher advance rates, and longer-dated solutions. This evolution marks a structural shift in fund finance, with Term Loans now seen as a core pillar rather than a complement to RCFs.
- Market conditions in Q2 were mixed. Central bank policy diverged: the ECB cut rates in June, while the Fed and Bank of England held steady. Despite tariff-related volatility in April, spreads retraced by May, supporting further margin compression.
- M&A activity fell sharply early in the quarter but rebounded strongly in May and June, reviving demand for flexible liquidity, while fundraising remained subdued, with LPs reallocating via record secondary activity.
- Key benefits of Term Loans including stronger liquidity management, and broader access to institutional investor capital. Their structural versatility allows use across fund lifecycles – from upfront liquidity to subordinated Tranche B structures and end-of-life financing.
- Relative Value of Term Loans with lower margins than the equivalent RCF (see article for the numbers).
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