The Funding Gap in Private Markets: Why Balance Sheet Strength Is Reshaping Access to Capital
- Alessandro Montefiori
- Jan 18
- 4 min read
The funding gap across private markets and private credit is widening, with capital increasingly concentrating among institutions with large, stable balance sheets. What was once viewed as a cyclical divergence driven by higher interest rates is now increasingly structural. Balance sheet depth, funding durability, and execution certainty are becoming decisive factors in access to capital, alongside traditional credit quality.
Recent developments — including refinancing activity, lender retrenchment, and continued institutional capital deployment — confirm that the funding gap is no longer a short-term dislocation. For private market managers, sponsors, and institutional investors, this structural shift is reshaping competition, pricing power, and risk distribution across private credit and adjacent asset classes.
Market Context: How the Funding Gap Is Emerging in Private Markets
The funding gap reflects a fundamental change in how private market and private credit capital is sourced and sustained. Higher-for-longer interest rates have increased the cost of leverage, reduced the reliability of short-term funding, and exposed vulnerabilities in capital structures reliant on continuous refinancing.
By contrast, institutions supported by permanent or long-dated capital, insurance balance sheets, or diversified funding sources are better positioned to absorb volatility and deploy capital through the cycle. Over recent weeks, this divergence has become increasingly visible.
Large asset managers, insurers, banks, and state-backed investors have continued to refinance portfolios, extend maturities, and selectively underwrite new risks. Meanwhile, smaller lenders dependent on warehouse lines or episodic fundraising have scaled back origination, tightened underwriting standards, or exited certain market segments. The result is a funding gap increasingly defined by balance sheet resilience rather than risk appetite.
Why the Funding Gap Matters for Private Market and Private Credit Managers
For private market and private credit managers, the funding gap is reshaping fundraising dynamics and competitive positioning. Capital providers are placing greater emphasis on funding stability, repeatability, and lifecycle support, rather than purely on headline returns.
Managers with access to institutional capital, permanent vehicles, or anchor investors are better positioned to meet these expectations. Operational scale and funding structure have become core differentiators.
The ability to hold assets on balance sheet, provide follow-on capital, and avoid forced syndication is now a strategic advantage. As the funding gap widens, managers without these capabilities face higher funding costs, reduced flexibility, and increased exposure to market disruptions.
Implications for Sponsors and Borrowers in Private Credit
The funding gap is also reshaping outcomes for sponsors and borrowers across private credit markets. Larger, well-capitalized companies continue to access financing, often through a smaller group of lenders offering certainty of execution and underwriting capacity.
By contrast, smaller or more cyclical borrowers are encountering tighter leverage limits, more conservative structures, and fewer credible funding sources. In this environment, sponsors increasingly prioritize counterparties capable of committing capital quickly and reliably, even where pricing is marginally higher.
This shift further reinforces the funding gap, as deal flow gravitates toward institutions with the balance sheet strength to underwrite, hold, and support transactions without reliance on external capital markets.
Implications for Institutional Investors Competing for Access
As the funding gap deepens, access dynamics across private markets are changing. Institutional investors aligned with large, well-capitalized platforms may benefit from greater stability and downside protection, albeit sometimes at the cost of lower headline yields.
Conversely, investors allocating to smaller managers must assess not only asset quality but also the durability of underlying funding structures. Funding risk — once considered secondary — is increasingly a primary driver of risk-adjusted returns across private credit and structured private market strategies.
This environment is likely to increase dispersion in performance and liquidity outcomes, particularly during periods of market stress.
Outlook: The Funding Gap as a Structural Divider in Private Markets
Looking ahead, the funding gap is expected to persist and potentially widen further. Institutions with strong balance sheets and long-term capital are increasingly setting market terms, pacing deployment, and shaping underwriting standards across private markets.
Their ability to act through volatility positions them as structural anchors in a more fragmented funding environment. The central implication is clear: the funding gap is no longer a temporary condition, but a defining feature of modern private markets.
Managers, sponsors, and institutional investors that recognize and adapt to this shift — by prioritizing funding durability, execution certainty, and capital structure resilience — will be better positioned as private markets continue to recalibrate.
Q&A: The Funding Gap in Private Markets and Private Credit
What is the funding gap in private markets?
The funding gap refers to the growing divergence between institutions with large, stable balance sheets and those reliant on short-term or fragile funding sources in private markets and private credit.
Why is the funding gap widening now?
Higher interest rates, reduced leverage availability, and increased scrutiny of funding structures have elevated the value of permanent and long-dated institutional capital.
How does the funding gap affect private market managers?
Managers with durable funding gain advantages in fundraising, deal execution, and portfolio management, while others face higher costs and structural constraints.
What does this mean for sponsors and borrowers?
Access to private credit is increasingly concentrated among larger borrowers and sponsors able to partner with well-capitalized lenders offering execution certainty.
How should institutional investors respond?
Investors should evaluate funding durability alongside asset quality and incorporate funding risk more explicitly into private market portfolio construction.
In a market increasingly defined by funding durability, informed capital strategy matters.
CGPH Banque d’Affaires engages with institutional stakeholders on capital structuring, private credit strategy, and execution across evolving private market environments.
