Dec 9, 2025
Recent volatility across the private credit markets and the potential for those conditions to carry over into secondary and public trading markets has raised new questions around financing stability for investment managers.
Recent volatility across the private credit markets and the potential for those conditions to carry over into secondary and public trading markets has raised new questions around financing stability for investment managers. As we’ve discussed in recent posts, tightening liquidity, shifting dealer risk appetites, and higher margin demands are creating real pressure on leveraged strategies. Against this backdrop, term commitments have become increasingly important tools for protecting managers from sudden disruptions in financing availability or unfavorable changes in terms. Financing in these markets takes different forms, each of which introduces its own financing and liquidity risks:
Margin debits – When investors borrow cash against their portfolios, the cost and availability of that borrowing can fluctuate daily.
Securities borrows for short positions – Shorting requires borrowing securities, but rates and availability can be negatively impacted when supply tightens.
Derivatives exposures – Instruments such as swaps, futures, and options require margin and financing that can change with market conditions. In periods of stress, banks can change the methodologies they use to calculate exposure, which can materially increase margin requirements with little notice.
At any given time, a firm’s portfolio may be performing as contemplated, but without protection against changes in financing terms, such changes may have a material adverse impact on what otherwise would have been a performing strategy.
How Market Conditions Impact Financing
While rate levels have recently moderated, shifts in market conditions, dealer balance-sheet priorities, and margin methodologies can still create meaningful pressure on leveraged portfolios. Even modest changes in financing terms can affect liquidity planning, trading flexibility, and overall strategy performance:
Margin debit costs – Borrowing rates across brokers may increase during certain market environments, which can raise the cost of leverage for funds of all sizes.
Margin debit balances – Elevated industry-wide borrowing may lead to tighter lending capacity, giving banks more leverage to raise rates or pull back capacity.
Increased market volatility – Volatility can lead to larger margin swings, higher financing haircuts, and an increased likelihood of intraday or overnight margin calls.
Year-end balance sheet management – Banks and dealers routinely reduce exposures at year-end to meet regulatory capital and liquidity requirements, which typically results in less attractive financing terms.
How Term Commitments Stabilize Financing
Fixed rates – Term arrangements lock in funding rates for a set period, insulating managers from sudden increases in margin debit costs or borrow fees.
Fixed margin – Instead of collateral requirements shifting with daily market moves or dealer risk appetite, term agreements establish predictable margin levels for a set period that make liquidity planning far more predictable.
Fees, charges, and costs commitment – Term agreements can commit the dealer to a defined schedule of fees and transaction charges over the life of the arrangement. This prevents unexpected increases to financing costs, borrow charges, clearing fees, or other dealer-imposed costs that could erode strategy returns.
Clearing and settlement commitment – Dealers can also commit to providing clearing and settlement services for trades executed under the facility, even in periods of market stress. This protects managers from disruptions caused by clearing capacity constraints, changes to settlement timelines, or intraday adjustments to required collateral.
Quadrangle’s Advantage: Expertise + AI-Powered Oversight
Securing a term commitment is only the first step. Ensuring the structure, economics, and margin mechanics continue to align with a firm’s strategy requires both deep understanding, negotiation experience, and ongoing visibility into executed agreements. Quadrangle combines legal expertise with technology to support managers throughout the full lifecycle of their term financing.
Quadrangle helps firms:
Assess whether a term commitment is appropriate based on strategy, liquidity needs, and existing financing arrangements.
Negotiate terms across prime brokers and derivative counterparties using technology and know-how.
Proactively structure terms around economics, margin levels, triggers, and collateral mechanics with a view to maintaining consistency across brokers and counterparties.
AI-Powered Management of Term Commitments
Once the agreement is executed, Quadrangle’s AI-powered QDS contract lifecycle management system ensures managers maintain complete visibility into their obligations and financing terms.
The QDS Platform:
Extracts contract terms — including collateral eligibility, margin requirements, asset coverage, and renewal provisions.
Generates an AI-driven, term-by-term view that links each data point to the precise section of the agreement, accessible with one click.
Creates side-by-side comparisons across agreements, helping firms evaluate consistency and spot opportunities to negotiate.
This combination of legal subject matter expert negotiation and AI-powered clarity allows investment managers to secure preferred terms, stable financing, and manage liquidity more confidently — especially in periods of elevated volatility or balance sheet stress.
