When Is Enough Enough?

As the Cadwalader European Fund Finance team commented at the end of 2022 (following an industry-wide survey), 2023 was predicted to be a challenging environment for subscription line financing given increased regulatory requirements, higher interest rates and liquidity constraints, among a number of other factors.

In the final quarter of 2022 and at the start of 2023, we have seen a number of these themes play out as predicted, with liquidity constraints clearly playing into pricing.

Spreads across all sizes of managers and asset classes are widening. This, coupled with the rising rate environment making the all-in cost to utilise subscription lines at an all-time high, has prompted a debate: at which point does subscription finance become uneconomical for GPs?