27 June 2024

Portfolio Finance: Missing a $100+ Billion Annual Opportunity

The rapid expansion of private markets has created an opportunity for investors to earn attractive returns in private IG credit, underpinned by the financing needs of asset managers and funds. Yet this segment of the market remains little known and less understood.

A Rapidly Growing Funding Gap

Private markets have experienced rapid growth over the last decade and show little sign of slowing, with the market segment forecast to expand by 9% each year to reach $17.6 trillion by 2027 (Figure 1). At the same time, traditional banking capital sources—which asset managers and asset owners have historically relied on to finance the needs associated with their private market portfolios—are becoming increasingly limited, with bank balance sheets expected to grow by only 4% a year. As a result, the funding gap for asset managers has emerged and is getting bigger and bigger.

Figure 1: A Significant Funding Gap is Emerging

Source: Preqin, Future of Alternatives 2028 report; Source McKinsey & Company, The Global Banking Annual Review 2023. As of December 2023. Note: Excludes hedge funds and ventures asset classes as not targeted by Barings Portfolio Finance. Figures in $ trillion, excludes China.

This is where the opportunity for institutional investors comes in. As private markets continue their rapid growth and the financing needs of asset managers operating within them have become more sophisticated, specialized lenders have stepped in to address this funding shortfall in portfolio finance. But while investors, including insurance companies, have increasingly been recognizing this attractive opportunity in portfolio finance, the breadth and scale of it are often underestimated—and it is likely much larger than many realize.

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Ilena Coyle, Managing Director

Phone: +1 980-417-5651

Email: ilena.coyle@barings.com

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