Capital call financing has traditionally been the domain of banks, providing private fund managers with short-term loans backed by investors’ uncalled capital commitments. Institutional investors are now beginning to explore this space as a standalone investment strategy. This asset class offers exposure to investment-grade private credit, combining high credit quality with a premium over comparable public-market instruments. For Bas Kragten of Aegon Asset Management, the appeal lies in the combination of strong credit quality, attractive spreads, short maturities, and floating-rate exposure.
“The capital call financing market has been around for a number of decades, but it is still very much dominated by bank lenders,” says Bas Kragten, Head of Fund Finance at Aegon Asset Management. However, institutional investors are increasingly recognizing the opportunity. The team made its first capital call financing loan in 2018. “We were one of the first, institutional investors to enter the market at that point in time,” Kragten recalls.
The relatively limited institutional participation is striking given the size of the opportunity. Subscription line financing, the principal form of capital call financing, represents an estimated $1.3 trillion outstanding globally. Kragten sees growing awareness of the asset class as an encouraging development, particularly as more managers begin offering dedicated investment vehicles. Aegon launched its Luxembourg RAIF Capital Call Finance Fund in May 2025 and has since onboarded 22 investors. “What is interesting is that the composition of that investor base is actually quite diverse.”
The expansion of fund finance has largely tracked the growth of private markets. As private equity, private debt, and infrastructure funds have increased in both number and size, so has their need for financing. “The market for financing these private market funds has essentially grown alongside the number and size of private market funds outstanding in total, although that relationship is obviously not one-to-one,” explains Kragten.
“The market for financing these private market funds has essentially grown alongside the number and size of private market funds outstanding in total, although that relationship is obviously not one-to-one.”
Bas Kragten of Aegon Asset Management.
As the private markets have matured, new fund financing strategies have emerged, including continuation vehicles and net asset value (NAV) financing, each serving different financing needs and relying on different sources of repayment. “With somewhat less fundraising in recent years, we have seen a much more rapid development of different forms of financing, including continuation vehicles and NAV financing in various shapes,” Kragten explains. Despite this evolution, “subscription line financing, or capital call financing, is one of the more stable parts of that market. It has been around for decades.”
Relative value, floating rates, and short maturities
While the growth of fund finance has been driven by the expansion of private markets, investor demand for capital call financing reflects a different set of considerations. Capital call financing offers an opportunity to access investment-grade private credit with a yield premium over comparable public-market instruments. “The relative value of the asset class versus public comparables is one of the key considerations,” argues Kragten. He points to a credit spread premium of almost 150 basis points over comparable investment-grade instruments of similar maturity.
“The relative value of the asset class versus public comparables is one of the key considerations.”
Bas Kragten of Aegon Asset Management.
Kragten also points to a broader shift in institutional demand towards investment-grade private credit, contrasting with the predominantly sub-investment-grade direct lending strategies that attracted considerable attention from investors a decade ago. For insurers, the combination of yield and credit quality can be particularly attractive relative to regulatory capital requirements. Other investors value the short maturities and floating-rate structure, which limit sensitivity to changes in market interest rates.
“Despite the short maturities, many investors look at the allocation to this asset class from a strategic medium term perspective. They are invested for a number of years, benefiting from the the yield pick-up and attractive risk return profile,” Kragten says. More recently, however, he has also encountered investors seeking to reduce overall portfolio risk without sacrificing too much income. “They want to take some chips off the table and stabilize their portfolio, but not give up all the return.” In this context, the floating-rate structure, short maturity and high credit quality can offer a useful combination. “The sensitivity to interest rates is low, while the high credit quality also makes investors comfortable allocating to the market,” he adds. Capital call financing offers what Kragten describes as “one of the more scalable and transparent investment opportunities.”
“The quality and diversity of the LP base, combined with the very strong economic incentives for LPs to fulfil their obligations, provide very strong backing for the loans we provide.”
Bas Kragten of Aegon Asset Management.
“The key credit risk drivers are actually quite transparent,” Kragten says. The quality of the LP base is central to the analysis, as is the economic incentive for investors to honor their commitments. Failure to meet a capital call can have serious consequences for an LP’s position in the underlying fund, creating a strong incentive to fulfil its obligations. “The quality and diversity of the LP base, combined with the very strong economic incentives for LPs to fulfil their obligations, provide very strong backing for the loans we provide,” he explains. The relative homogeneity of transactions also helps managers assess and compare lending opportunities.
Liquidity is another consideration. Capital call loans are generally not traded in a liquid secondary market, potentially making it difficult for investors to exit positions before maturity. Their relatively short duration can help mitigate this constraint, however. “A lot of the loans we provide are inherently short, typically ranging from 12 months to a maximum of three years in the European market,” according to Kragten.
Origination and scale as competitive advantages
Successful investing in capital call financing also depends on a manager’s ability to source opportunities consistently and deploy capital at scale. Aegon has been active in capital call financing since 2018 and has developed what Kragten describes as a “proven and scalable origination platform.” The firm expects to originate up to €2 billion in loan volume this year, in line with the commitments raised following the launch of its Luxembourg fund.
“Capital call finance offers good, solid investment-grade opportunities to place money, even in events or situations where the market is more volatile.”
Bas Kragten of Aegon Asset Management.
Aegon’s broader private credit platform provides an additional advantage. With $65 billion managed across private credit, the firm can compare opportunities across markets and assess pricing against a wide range of alternative investments. “That gives you the depth of analysis and visibility into what the market is offering,” Kragten says. The platform also supports investor relations and fundraising, as prospective investors may already have experience with Aegon’s other strategies. “It helps to have established relationships with potential investors who have invested with Aegon before and know the name and the quality that we deliver,” he adds.
Uncertainty is a feature of today’s broader market environment. Yet Kragten believes capital call financing can continue to provide institutional investors with opportunities to deploy capital at the investment-grade end of private credit, including during periods of heightened volatility. “Capital call finance offers good, solid investment-grade opportunities to place money, even in events or situations where the market is more volatile,” Kragten concludes.
This article is part of HedgeNordic’s “Alternative Fixed Income” publication.
