An introduction to Asset-Based Finance
In this first part of our explainer series, we explain what Asset Based-Finance (ABF) is, why it has grown into a $40 trillion market, and how it fits into the continuum of credit offering a broad range of exposures that create attractive opportunities for income, diversification and security.
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The private credit landscape is undergoing a structural shift, with ABF emerging as a central pillar of the asset class.
As banks retreat under the weight of post‑crisis regulation, non‑bank lenders, insurers and alternative asset managers are increasingly stepping into the gap, broadening the universe of originators and accelerating the growth of private credit markets.
But what does this expansion mean for investors seeking resilient income, diversification and more predictable cashflows? And how should allocators think about ABF’s role within a broader private credit allocation, particularly as demand for shorter‑tenor, collateral‑backed exposures rises?
In this first part of our explainer series, we cover key topics to support investors’ understanding of this dynamic segment of the global credit universe, including:
- ABF represents a far larger and more diverse market than corporate direct lending - over $40 trillion in outstanding debt spanning consumer finance, SME credit, real‑asset‑backed lending and specialty finance.
- Structural regulation and capital requirements have constrained bank balance sheets, shifting lending activity to non‑banks and creating long‑term opportunities for private credit investors to finance everyday economic activity, from mortgages and auto loans to data centres and infrastructure.
- ABF offers genuine diversification benefits: correlations to direct lending are low, underlying exposures are typically granular and collateralised, and amortising structures provide interim cashflows and natural deleveraging.
- As private credit AUM continues to grow, allocators are increasingly turning to multi‑sector ABF strategies to complement corporate lending, manage liquidity needs and reduce sensitivity to macroeconomic shocks.
- With income attractive but risk premiums compressing, ABF’s shorter‑duration, cashflow‑oriented investments offer a flexible toolkit to navigate shifting market conditions while enhancing downside protection.
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