Connecting pension capital to real economy lending

Interviewee:

Francesco Filia
Founder and Chief Executive
Fasanara Capital

Fasanara Capital founder and chief executive Francesco Filia (FF) speaks to LAPF Investments (LAPF) about why real economy lending offers LGPS funds productive finance, diversification and local impact

LAPF: Drawing on your experience at Bank of America Merrill Lynch and J.P. Morgan, what structural gaps in traditional credit markets did you identify that ultimately shaped Fasanara’s fintech-enabled approach to alternative credit?

FF: “During my years at Bank of America Merrill Lynch and J.P. Morgan, it became increasingly clear that traditional credit markets were facing deep structural constraints.

“Regulation after the financial crisis forced banks to retreat from large parts of real-economy lending – not because the borrowers were unworthy, but because the balance-sheet and capital framework no longer allowed banks to serve them efficiently.

“At the same time, the market remained fragmented, inefficient, and reliant on slow, manual underwriting processes that simply could not scale to support SMEs, digital businesses, and new-economy merchants.

“What fintech brought to the table – and what ultimately shaped Fasanara’s strategy – was the ability to underwrite using real-time, granular data rather than backward-looking financial statements.

“When you can see live cash-flows, invoices, platform activity, and transactional behaviour, you can assess risk with far greater precision and speed. This transforms the economics of small-ticket lending and opens the door for institutional investors to provide funding where banks can no longer operate.

“Our fintech-enabled approach is essentially a modern credit infrastructure: data-rich, technology-driven, short-duration, and highly diversified. It fills the gap left by the banks in a way that is transparent, scalable, and aligned with the needs of long-term investors such as local government pension schemes.”

LAPF: For readers who may not know Fasanara, how would you describe what the company does, and the problem you’re solving for SMEs and investors?

FF: “Fasanara is a UK-headquartered, FCA-authorised investment manager specialising in technology-enabled SME and real-economy lending. We provide institutional investors with access to short-dated, asset-backed exposures such as trade receivables and working-capital finance, originated through a network of fintech platforms.

“For SMEs, the problem is access to timely, flexible finance – often to bridge the gap between delivering goods or services and getting paid. For investors, the challenge is generating resilient income and diversification in a world where traditional credit and equity markets have become increasingly correlated.

“We solve both by connecting long-term institutional capital directly to the short-term funding needs of the real economy, using technology to manage risk and scale responsibly.”

LAPF: How has this asset class evolved over time, particularly since the global financial crisis?

FF: “The global financial crisis marked a turning point. Banks became more capital-constrained, and under Basel regulation they increasingly prioritised large corporate clients and secured lending. SME lending, especially short-dated working capital, became uneconomic for many banks.

“At the same time, digital platforms emerged that could originate, service and monitor SME credit far more efficiently. Over the past decade, this has evolved from a niche activity into an institutional asset class, with clearer governance, better data, and a growing track record through multiple market cycles.

“What was once fragmented and opaque has become increasingly transparent and investable for long-term asset owners.”

LAPF: From the perspective of an LGPS investor, how does SME lending differ from private credit?

FF: “Traditional private credit typically involves long-dated, leveraged loans to mid- or large-sized corporates, often with multi-year lock-ups and meaningful exposure to economic cycles and refinancing risk.

“SME lending, particularly trade receivables and working-capital finance, is fundamentally different. It is short-duration, self-liquidating and asset-backed. The return profile has no leverage, much shorter duration (60-90 days), and more by diversification and scale.

“For LGPS investors, this means a potential role closer to income generation and portfolio resilience, rather than growth-oriented illiquid credit.”

LAPF: The government is encouraging “productive finance” and place-based impact investing. How does SME lending fit into these aims, and how can it help LGPS funds achieve place-based goals?

FF: “SME lending is productive finance in its most direct form. It finances inventory, payroll and trade – activities that sustain jobs and local supply chains. Unlike many forms of private capital, the link between capital deployed and economic activity is immediate and tangible.

“It is a key pillar of the Place Based Impact Investing white paper recently published by The Good Economy, with input from many of the pools and LGPS funds.

“For LGPS funds, this creates an opportunity to align fiduciary objectives with local impact. Capital can be deployed into UK SMEs operating in specific regions, supporting local employment and economic resilience, while still meeting return and risk requirements.

“Importantly, this is not concessionary investing; it is commercially priced finance addressing a structural funding gap.”

LAPF: SMEs are often called the backbone of local economies. How does providing finance to SMEs translate into real economic impact for communities?

FF: “SMEs account for a significant share of employment and economic activity across the UK. Access to working capital determines whether these businesses can grow, hire, or even survive periods of stress.

“When finance is reliable and predictable, SMEs can invest with confidence. That stability flows through to employees, suppliers and local communities.

“From our perspective, the impact is not abstract – it is embedded in day-to-day economic activity, supporting thousands of businesses that collectively underpin regional economies.”

LAPF: LGPS pools are under pressure to support local growth while meeting fiduciary duties. Why is SME lending particularly relevant now?

FF: “LGPS funds are navigating a complex environment: maturing liabilities, lower expected returns from traditional assets, and increasing policy focus on domestic growth. SME lending sits at the intersection of these pressures.

“It offers contractual income, diversification away from listed markets, and a clear link to UK economic activity. Crucially, it can be structured with appropriate liquidity, governance and transparency, making it compatible with the fiduciary and pooling frameworks LGPS investors operate under.”

LAPF: How does SME lending fit into wider LGPS asset allocation strategies?

FF: “In practice, SME lending is often positioned within alternative credit or income-oriented allocations. Its short duration and cash-generative nature can complement liability-aware portfolios, particularly for schemes that are cash-flow negative or moving toward lower dependency.

“It can also sit alongside infrastructure and private credit as part of a broader allocation to productive assets, but with a different risk profile – less exposed to duration and valuation risk, and more reliant on diversification and operational discipline.”

LAPF: Technology plays a significant role in modern finance. How does Fasanara use technology to lend at scale while controlling risk?

FF: “Technology is central to our model. We integrate directly with fintech originators, capturing granular, loan-level data across millions of transactions.

“This allows us to underwrite, monitor and stress-test portfolios in near real time.

“Risk management is embedded throughout the process – from originator selection, to automated credit scoring, to continuous performance monitoring. Scale is achieved not by concentrating risk, but by diversifying across thousands of small exposures, geographies and sectors.”

LAPF: Can you share an example of a recent UK transaction that demonstrates both financial returns and local impact?

FF: “A typical example would be the financing of trade receivables for a UK-based manufacturing supplier serving a larger domestic buyer. By purchasing the receivables, we provide immediate liquidity to the SME, allowing it to meet payroll and invest in production, while the fund is repaid in typically 60-90 days.

“These transactions are small individually, but at scale they support hundreds of businesses across the UK, delivering predictable income to investors and tangible economic benefits locally.”

LAPF: Looking ahead, how do you see SME lending evolving within UK pension portfolios?

FF: “We expect SME lending to become a more established component of LGPS portfolios, particularly as funds seek diversified income and closer alignment with domestic economic objectives.

“As the asset class continues to institutionalise – with stronger governance, data transparency and track records – it should become easier for pools and funds to allocate at scale. In our view, SME lending will increasingly be seen not as an alternative, but as a core building block within productive, resilient pension portfolios.”