EquitiesFirst Executive on ‘Looking Beyond Equity Sales and Bank Lending To Fund New Investment Opportunities in the UK’
The U.K. is dealing with a complex web of economic challenges. A convergence of higher capital gains taxes, persistent credit constraints, and a nonetheless relatively positive long-term growth outlook have created what might seem like a paradox: the potential for robust investment opportunities alongside somewhat limited traditional financing paths.
This tension between opportunity and access could spark renewed interest in alternative financing structures, particularly among investors seeking to maintain strategic long-term positions while deploying capital to invest in growth. It’s a shift that reflects a deeper transformation in how investors approach capital allocation in a tax environment in which traditional exit strategies carry heightened costs.
“Many banks remain unwilling to provide financing for the equity investments needed to drive growth,” wrote James Mungovan, chief executive officer for Europe at equities-based financing firm EquitiesFirst, in a recent op-ed. Mungovan highlighted concerns the new Labour government itself acknowledged in its recent Invest 2035 industrial strategy paper.
After two years of successive tightening, both British and eurozone banks have reported largely unchanged credit supply through Q3 2024, even as demand shows signs of increasing following interest rate cuts. Growth in demand could widen the gap between capital needs and traditional lending capacity at a particularly critical juncture for the U.K. economy and for lending throughout Europe.
“This is, of course, a continent-wide problem that could well get worse before it gets better — even though interest rates are finally on the way down,” wrote Mungovan.
One potential solution lies in equities-based financing from alternative lenders like EquitiesFirst, said Mungovan. He noted that there are several factors that would support “holding on to core, long-term investments and looking beyond equity sales and bank lending when it comes to funding new investment opportunities in the U.K.”
The Paradox of Opportunity and Access
Despite what Mungovan characterized as “pervasive fiscal gloom,” Britain continues attracting substantial capital across sectors ranging from data centers to life sciences. The government’s International Investment Summit in October 2024 secured billions in new commitments, suggesting enduring confidence in the U.K.’s long-term prospects.
While recent outflows from U.K. equity funds reached nearly £1 billion (approximately $1.2 billion) in the month before the budget announcement, Mungovan observes that this number “can’t even be considered a rounding error relative to the London Stock Exchange’s £4.4 trillion market capitalization, and the lion’s share of U.K. equities are owned and traded by institutional investors who are not subject to .”
This resilience suggests investors are adapting their approach rather than retreating from opportunities, and adaptation comes as the U.K. positions itself for what the International Monetary Fund projects as 1.1% growth for 2025, placing it alongside France as the G7’s joint third-fastest growing economy.
This divergence between opportunity and traditional financing availability has accelerated the growth of alternative funding channels. Bank of England data reveals a striking transformation: Nonbank financiers provided nearly all of the £425 billion net increase in lending to British businesses between 2008 and 2023. Within this expanding alternative finance environment, equities-based specialists like EquitiesFirst have established a position in a global private credit market now approaching $2.5 trillion.
Strategic Adaptation in a Changing Market
Despite some signs of growth and recovery, the Bank of England has warned about the risk of an intensified credit crunch due to the risk of vulnerable financial markets. The ability to maintain strategic equity positions in such an environment is key for those who may also want to access capital to invest in growth in the current market.
This is particularly relevant given the proposed pension fund reforms that could reshape demand for U.K. assets. The impact of recent tax changes adds another layer of complexity. With CGT on carried interest set to rise from 28% to 32% in April 2025, and further increases likely in 2026, investors face mounting pressure to reconsider traditional approaches to capital access.
This is where providers such as EquitiesFirst can become a viable option. The firm’s approach enables investors to obtain financing against existing shareholdings while maintaining long-term equity positions.
While traditional financing channels remain constrained and tax considerations have grown more complex for those with significant equity positions, alternative financing structures offer a potential bridge between maintaining strategic positions and pursuing growth opportunities, particularly for those who are optimistic about several factors, Mungovan wrote.
“You may believe that U.K. equities will gain value over the next few years as growth improves and the Chancellor’s proposed pension fund reforms bring a new driver of demand for U.K. assets,” wrote Mungovan. “Or, like companies from DP World to Iberdrola, you may see opportunities ahead for investment in Britain.
“You may also be undeterred by reports that investors sold off nearly £1 billion from U.K. equity funds in the month leading up to the budget.
“And you may also have a view that CGT may come down again one day, when the political cycle turns once more.”
For those “holding any of those convictions,” he wrote, alternative financing could be a productive means of accessing capital.