Lloyds, Legal & General pass £1.5bn funding milestone

KAREN JOY BACUDO

Finance Editor

Lloyds and Legal & General have passed £1.5 billion in participations through their fund finance co-investment partnership, which has been in place since December 2022.

The partnership combines bank-led origination and structuring from Lloyds with institutional capital from Legal & General to provide finance across a range of fund facilities. The latest figure points to continued demand for short-duration funding in private markets.

Fund finance has grown as private market activity has expanded. Fund managers use these facilities to bridge capital calls and manage cash flows between fundraising cycles, giving sponsors access to liquidity at different stages of a fund’s life.

For banks, such arrangements provide a way to originate deals while bringing in outside pools of capital. For institutional investors, they offer access to short-dated assets that can meet demand for lower-duration exposure.

The partnership also supports Legal & General’s broader short-term alternative finance strategy, which stands at £2 billion. The insurer and asset manager said the model gives it access to a pipeline of investments for clients, including insurers, pension schemes and other institutional investors.

Lloyds said it has developed its offering to financial sponsor clients over several years as market demand has changed. The bank described the structure as part of a broader effort to combine its lending origination with institutional backing to provide larger volumes of financing.

The milestone comes as private markets continue to attract capital and financing needs become more varied. Liquidity facilities have taken on a larger role for sponsors seeking to maintain investment activity while managing the timing gap between investor commitments and cash deployment.

A senior Lloyds executive said the result reflected both the scale of the market and the durability of the relationship with Legal & General.

“Surpassing £1.5bn with L&G reflects both the strength of this partnership and the depth of our experience supporting financial sponsor clients with innovative financing solutions. We have worked closely with clients in this market for many years, evolving our financing solutions as their needs change and supporting them by combining our origination capabilities with institutional capital to deliver funding at scale. This partnership is a strong example of our solutions-led approach and our focus on building long-term, sustainable relationships that support clients across market cycles,” said Jill Wilson, Managing Director, Financial Sponsors, Lloyds.

Legal & General said demand from insurers for shorter-duration assets with strong credit quality had helped support the strategy behind the arrangement.

“This milestone underlines the growing importance of partnerships between banks and institutional investors in supporting the evolution of private markets. By working with Lloyds, we are able to access high-quality, short-duration assets for our clients, where we are seeing particularly strong demand from insurers for low-duration investments with robust credit quality. Structures like this are an important part of how we scale our short-term alternative finance strategy while supporting the financing needs of private market sponsors,” said Matthew Taylor, Head of Alternative Debt, Asset Management, L&G.

The transaction volume suggests co-investment structures of this kind are becoming more established in parts of the private credit and fund finance market, where banks and long-term investors are looking for ways to share risk and extend lending capacity.

Legal & General manages £1.2 trillion in total assets, about 43% of which is held internationally. Lloyds remains one of the UK’s largest retail and commercial banks, with a broad customer base spanning consumers, businesses and financial institutions.