Overview of Structures
The French fund finance market has matured significantly over the past few years, with subscription facilities now becoming a mainstream liquidity solution for investment funds across all market segments. Against a backdrop of prolonged holding periods and constrained exit opportunities, NAV-based lending has gained traction as sponsors explore alternative means of generating distributions and funding portfolio growth. Market activity in this segment accelerated through 2024 and 2025, attracting participation from both traditional bank lenders and more recently credit funds, though subscription finance continues to be dominated by traditional banking players.
Regulatory Framework
A distinctive feature of the French regulatory landscape is the monopole bancaire, which restricts entities from extending credit on a regular, remunerated basis unless they hold appropriate authorisation as a credit institution (établissement de crédit) or financing company (société de financement). This constraint has shaped market dynamic with alternative lenders seeking exposure to NAV financings needing to deploy workarounds, most notably structuring their funding as bond subscriptions (émissions obligataires) rather than conventional loans.
Fund Structures
When establishing a vehicle for professional investors (Professional Fund), sponsors usually elect between several regulated vehicles. Key considerations include the fund’s target strategy, anticipated investor profile and applicable regulatory treatment. The principal options are:
(A) the Fonds Professionnel de Capital Investissement (FPCI), being a contractual fund or corporate vehicle with variable share capital; or
(B) the Fonds Professionnel Spécialisé (FPS), available in multiple forms including the FIPS (contractual fund), SICAV (corporate form), and two partnership structures: the Société de Libre Partenariat (SLP) and the Société de Libre Partenariat Spéciale (SLPS). Both partnership forms are functionally analogous to an English LP or Luxembourg SCSp.
French market practice favours the SLP and FPCI for fund finance purposes. All Professional Funds fall within the scope of AIFMD (Directive 2011/61/EU) as transposed into French law, triggering requirements around leverage monitoring, periodic reporting and internal risk controls.
Regulatory Requirements
From a regulatory standpoint, Professional Funds benefit from a streamlined launch process: no prior AMF approval is required, only a post-formation filing within 30 days. Constitutional documents may be prepared in French or English, the latter being the norm for cross-border structures.
Key Structuring Considerations for French Fund Finance
Several structural features distinguish the French subscription line market from its counterparts in other jurisdictions. These differences result largely from domestic interpretations of AIFMD leverage provisions and the constraints imposed by French banking regulations. The result is a set of bespoke mechanisms that deliver comparable commercial outcomes through distinct legal pathways.
2.1 Subscription Facilities
Rather than deploying revolving credit structures which are common elsewhere, French market participants favour committed term facilities including a replenishment feature.
This preference traces back to AIFMD’s treatment of fund-level borrowing. Under Article 6 of Commission Delegated Regulation 231/2013, "temporary" borrowings backed by binding investor commitments may be disregarded for leverage purposes.
The regulation explicitly excludes revolving facilities from this carve-out, leading French legal advisers to adopt a conservative application. Where other jurisdictions routinely employ revolvers with annual clean-down provisions, French funds instead utilise term debt with a commitment replenishment or/accordion mechanism.
Mechanically, this works as follows: upon repayment, the fund cannot immediately redraw; it must instead request that lenders reinstate their commitments for a corresponding amount. Lender approval is formally required but cannot be refused subject to the absence of a continuing event of default and other limited conditions. From a commercial perspective, the arrangement mirrors a revolver, as borrowers retain flexible access to liquidity despite the additional procedural layer.
Facilities capped at 364 days generally satisfy the “temporary” threshold. Utilisation mechanics will, however, vary by fund strategy. Some facilities permit drawdowns solely as term loans, while others also accommodate letters of credit.
Accordion features are standard, enabling funds to upsize the facility as additional investors are admitted during the fundraising period, subject to lender approval.
Historically, subscription facilities have carried minimal credit risk. The Abraaj Group default, characterised by fraud, fund misappropriation, and the opportunistic release of investors’ undrawn commitments, stands as the sector’s most prominent loss event.
The Stipulation pour Autrui in Subscription Finance
In France, lenders have sought to reinforce their documentation by mandating upfront investor notice of the relevant facility terms, drawdown mechanics, and security arrangements via the stipulation pour autrui, a third-party beneficiary mechanism governed by Articles 1205 to 1209 of the French Code civil.
Pursuant to this mechanism (typically incorporated in the fund’s By-Laws), the partnership, acting as stipulator (stipulant), irrevocably stipulates in favour of the lenders designated as beneficiaries (bénéficiaires) that each investor, acting as promisor (promettant), shall pay any due and unpaid amount into the partnership’s bank account in accordance with drawdown notices delivered by the lenders or their agent.
Each investor, acting as promisor, irrevocably undertakes to pay the relevant amount upon receipt of a drawdown notice. The stipulation becomes irrevocable once the lenders (or the agent on their behalf) have notified their acceptance to the partnership or the investors, within the meaning of Article 1206(3) of the Code civil. It is standard practice for investors to waive any right to revoke the stipulation prior to such acceptance.
Strictly speaking, French law imposes no notice requirement for the validity or enforceability of the stipulation pour autrui. In practice, however, lenders usually require a written notification to all existing investors at closing and to incoming investors as they are admitted.
This notification serves two purposes: (i) it forecloses any investor defence based on lack of actual knowledge (an argument unlikely to succeed before a French court in any event); and (ii) in a scenario involving fraudulent investor releases (as seen in the Abraaj case), it establishes actual knowledge, supporting a claim to have the release declared unenforceable (inopposable) against the lenders.
NAV-Based Lending
By contrast, NAV facilities require fewer jurisdiction-specific adaptations: neither the replenishment structure nor the stipulation pour autrui mechanism applies. French practice in this segment largely tracks international norms. Security packages typically encompass pledges over shares in portfolio SPVs, pledge over collection accounts, and (depending on deal parameters) portfolio company guarantees or cash collateral for letters of credit, or simply negative pledges.
That said, each transaction requires significant customisation, and market participants continue to refine documentation and diligence standards.