Portfolio Finance: The Risk-Reward Pick’n’Mix for Investors
Matt Hansford spoke to Private Equity Wire about the $200bn opportunity in portfolio finance, how it can serve as a strategic buffer against volatility and how as an asset class with large transactions, it enables investors to deploy at scale.
Traditional banking capital sources are lagging behind the private markets—bank balance sheets are expected to grow at just 4% each year, compared to 9% in private markets AUM, according to Barings. This creates a funding gap for asset managers seeking Portfolio Finance—which, in turn, creates a tremendous opportunity for institutional capital.
Portfolio finance involves various strategies that offer financing routes for private market portfolios, and is designed to create high-quality, investment-grade private fixed-income investments—expanding the investment-grade options available to investors in a defensible, scalable solution.
It is a relatively untapped market, which Barings suggests has an annual potential of in excess $200 billion.
“Whether in direct lending, buyout, infrastructure, secondaries, real estate or other strategies, portfolio finance at its core is diversified, providing cross-collateralisation—underperformance in one asset can be offset through collateralisation of others,” explains Matt Hansford, the European Head of Barings Portfolio Finance, highlighting the favourable risk-reward equation in the space.
