Mind The Gap

The term “funding gap” must be one of the most popular to be found in asset managers’ marketing presentations, especially since the global financial crisis. The opportunity to supply capital where there is less competition is intuitively appealing, but investors should heed the warning they announce on the London Underground to “mind the gap”. Funding gaps, like the gaps between the trains and the platform, both open and close, and now is the time for asset managers marketing presentations to become far more specific in their use of the term.

In the aftermath of the financial crisis, banks did retrench from lending in many sectors, initially as they focused on bolstering capital, and subsequently as they adjusted to a wave of re-regulation. This provided opportunities for asset managers to raise capital to make private loans. The sweet spot was private corporate credit, where investor familiarity and lower barriers to entry made both raising and deploying capital easier. Very few asset managers sought to re-create a bank-type network of lending offices, given they could simply pick up the phone to their friends at private equity firms and offer to finance their deals, quickly, flexibly and competitively.

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