The author argues that in an environment of shifting inflation dynamics, true diversification increasingly depends on assets grounded in measurable cashflows rather than market cycles.

The following article is from Francesca Filia (pictured below), who is chief executive and founder of Fasanara Capital, a company this publication has interviewed before. He examines a number of issues in today’s fixed income markets and where private credit sits in the portfolios of private clients. The editors are pleased to share these views; the usual editorial disclaimers apply to views of guest contributors. To comment, please email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Francesca Filia

Inflation patterns are diverging across Southern Europe. This is leading fixed income investors to refocus on stability, liquidity, and diversification with asset-based finance and its exposure to the real economy emerging as a complementary component in their portfolios. 

Italy provides an instructive case. For decades, Italian private banking portfolios were built on a simple foundation: government bonds that offered safety, yield, and predictability – the pillars of post-war wealth management. That foundation, however, is evolving. As Europe transitions into a new equilibrium after years of volatility, the macroeconomic backdrop – and with it, investors’ priorities – is shifting.

One key area of divergence is inflation. In Italy, inflation has moderated to around 1.6 per cent as of August 2025 (Figure 1). Falling import prices, moderate wage growth, and a firmer euro have restored price stability. Energy, once inflationary, is now broadly disinflationary. 

However, in Spain, the picture is more complex: headline HICP is expected to remain at around 2.3 per cent, while core inflation recently rose to 2.7 per cent – its highest level in 10 months. A tight labour market and rising housing costs have made Spain one of the eurozone’s more inflationary economies.

This disjunction is increasingly shaping portfolio design across Southern Europe. With inflation normalising in Italy but lingering in Spain, investors are refocusing on real yield, diversification, and liquidity – priorities that extend beyond traditional fixed income.

Figure 1: Annual inflation rates (%) across Europe in August 2025

 
Source: eurostat

From bonds to broader diversification
Italian private banking portfolios still reflect their heritage: large allocations to sovereign and bank bonds, complemented by equities and cash. Yet as yields fluctuate and spreads narrow, investors are broadening their horizons. Typical allocations now combine:

-- Fixed income: shorter duration, stronger credit focus;
-- Equities: more global and thematic, from AI to semiconductors and defence;
-- Private markets: including private equity, private debt, and infrastructure; and
-- Cash: retained for flexibility, but less central to long-term returns.

Across both Italy and Spain, one trend stands out – rising interest in private credit (Figure 2), particularly strategies offering real-economy exposure with short durations and limited lock-ups.

Figure 2: European private credit AuM, 2013-2023 (US$ billion)

 
Source: Preqin

Understanding private credit’s resilience
Private credit’s defining feature is its cashflow-based valuation. Unlike private equity – where returns depend on multiple expansion or exit markets – private credit derives value from contractual repayments. Portfolios that hold short-term receivables backed by large corporate obligors, with a focus on repayment performance, can help mitigate key risks by:

-- Aiming to moderate mark-to-market volatility; though valuations can still fluctuate;
-- Lower sensitivity to public-market valuation multiples; macro conditions can still affect borrower performance and collateral values; 
-- Reduced dependence on external refinancing/IPO markets; and 
-- Regular amortisation as receivables repay and proceeds are typically recycled; timing and liquidity are not assured.

In private credit, returns compound through repayment rather than re-rating – a feature that underpins resilience during periods of market stress. For private wealth investors, this could potentially make private credit a natural counterweight to private equity: less cyclical, less correlated, and more predictable.

Integrating private credit alongside real estate, bonds, and equities
When viewed alongside traditional portfolio pillars, private credit serves a distinct function – complementing real estate, equities, and fixed income rather than competing with them (Figure 3).

Figure 3: Private credit characteristics relative to major asset classes



Source: Fasanara Capital

As portfolios evolve beyond the traditional triad of equities, bonds, and real assets, private credit is increasingly seen as a fourth pillar – grounded in contractual cashflows rather than market valuations.

ELTIF: the bridge to private credit democratisation
The introduction of the European Long-Term Investment Fund or ELTIF marked a key milestone for Europe’s private-markets landscape. The revised framework streamlines eligibility rules, broadens investor access, and increases flexibility in portfolio composition. Under this regime, private-credit strategies –including short-duration, asset-backed lending vehicles – can be offered through regulated structures for qualified investors.

Since implementation, the number of authorised ELTIFs has risen sharply. According to ESMA data, active vehicles have grown from just five in 2016 to more than 230 in 2025 (Figure 4), with the steepest increase following the reform in January 2024 – fund numbers nearly doubling between 2023 and 2024.

Figure 4: Number of ELTIFs launched 

Source: European Securities and Markets Authority. Data correct as of 31 October 2025.

This acceleration reflects growing demand for long-term private-market exposure and the accessibility introduced under ELTIF. For private banks and wealth managers, it represents a structural broadening of opportunity.

The future of fixed income is private, short term, and real (1) 
With inflation patterns diverging across Southern Europe, investors are refocusing on stability, liquidity, and diversification within income-generating portfolios. Asset-based finance is emerging as a complementary component within modern fixed-income allocations – offering exposure to real-economy repayments.

For private banks and family offices, this marks an important evolution in portfolio design. In an environment of shifting inflation dynamics, true diversification increasingly depends on assets grounded in measurable cashflows rather than market cycles.

About Fasanara Capital
Fasanara Capital is an independent London-based asset manager and fintech platform specialising in alternative credit and quantitative strategies. Founded in 2011, the firm manages over $5.5 billion on behalf of institutional and professional investors globally. 

Footnote:  

1, The views expressed are of Fasanara Capital Ltd.