Fund finance in France: a tale of two markets

1. France catching up with the UK and U.S.

A few years ago, the French fund finance market was seen as less developed than its UK and U.S. counterparts. It has caught up quickly. Panelists agreed that it is now just as sophisticated, and that some French deals can be more attractive for sponsors. A relatively small number of GPs, a deep pool of lenders and a strong appetite for tailored solutions have made France one of the most innovative fund finance markets in Europe.

2. Subscription lines dominate, but the product range is widening

• Subscription facilities are still the most widely used product and have become largely commoditized.
• NAV financing has grown sharply. Higher loan-to-value ratios and more flexible terms mean it is now a mainstream tool, not just a backstop.
• Hybrid facilities that start as a subscription line and convert into NAV financing are becoming more common. Subscription lines are also being drawn for longer than before.
• Preferred equity used to be seen as a last resort. With higher interest rates, the pricing gap has narrowed, and the product's flexibility (longer tenors, lighter covenants, and no security) makes it more attractive.
• Structured and capital markets solutions are on the rise, including collateralized fund obligations (CFOs) and rated note feeders.
• Multi-currency facilities are helping sponsors manage foreign exchange exposure.
• GP financing has seen a marked increase in demand over the last 18 months, as managers look for ways to keep their commitments to their own funds and manage liquidity. 
• Infrastructure, real estate and private credit funds now use fund finance as actively as buyout and secondaries funds.

3. The French banking monopoly is easing

France's banking monopoly still limits who can lend in France. Sponsors raise it constantly, and it adds time and cost, which can weigh on smaller deals. It can require lending through vehicles in other jurisdictions, or structuring financings as notes. However, regulatory change is loosening the restriction. ELTIF 2 allows ELTIFs to lend, subject to conditions. AIFMD II, which France has not yet implemented despite the April 2026 deadline, should make it easier for loan-originating funds to lend directly in France. The CRD VI regime for third-country bank branches, due in January 2027, will also affect the landscape. In the words of one panelist, the monopoly is not disappearing, but it is melting.

4. Non-bank lenders are filling the gap

On more complex deals, non-bank lenders now provide much of the capital. They are often more flexible on structure and security, and the price difference with banks has narrowed considerably. Bank-led and syndicated NAV facilities usually take a full security package over underlying assets. Alternative lenders often accept a simple pledge over fund-level accounts instead, which costs more but can be executed much faster. Banks remain active and are drawing on expertise from across their businesses to give French sponsors access to the same solutions offered internationally.

5. Underwriting, pricing, and performance

NAV lenders described three underwriting pillars: the manager (team, governance and track record), the portfolio (diversification, valuation process and exit prospects) and the structure, which typically includes cash sweeps tied to loan-to-value and diversification. One GP said that pricing fell until around 2018, rose until about 2024 and is now falling again. In its view, pricing reflects supply and demand more than borrower quality. Fund finance has so far proved highly resilient, with rated facilities reported to have seen no defaults. Deals are largely relationship-driven and run as bilateral or club processes, and wide syndication remains rare.

6. Investors are taking a closer look

Large institutional LPs are looking harder at how facilities are used. Smaller LPs, on the other hand, often value predictable capital calls. Attitudes to fund-level leverage also differ by investor type, regulatory position and region, notably between European and North American LPs. Following ILPA guidance on the use of fund-level facilities, LPs are increasingly negotiating NAV-specific provisions. GPs stressed the importance of transparent disclosure to investors and of using NAV facilities for investment purposes.

Looking ahead

Panelists expect:

• capital markets solutions such as CFOs and rated feeders to grow, both as a source of liquidity and as an alternative to traditional fundraising
• consolidation among GPs
• more insurers and other institutional investors taking part in fund finance, particularly at the lower-risk end, where the attraction depends on regulatory capital treatment and ratings
• further loosening of the French banking monopoly as AIFMD II and CRD VI take effect and
• continued demand for sophisticated products, as sponsors focus on liquidity and on navigating headwinds.