Asset-Based Finance: The Next Frontier of Private Credit

What is Asset-Based Finance?

In the fast-growing private credit universe, interest is building around asset-based finance (ABF), a sector that offers compelling and consistent diversifying return potential. Also referred to as asset-backed finance, asset-based lending (ABL) or specialty finance, we consider it the next frontier of private credit and estimate the market to be about $20 trillion* in the U.S.

Often secured by hard assets as collateral, it provides critical funding across the global economy in residential mortgage, consumer credit, and non-consumer lending.

^* As of June 30, 2024. Source: PIMCO

Consumer Credit

Unsecured consumer loans, credit card receivables, auto loans, student loans

Non-Consumer Lending

Aviation finance, equipment finance, data infrastructure, small business loans, intellectual and insurance related

Residential Mortgage

U.S. residential mortgages, European mortgages, home improvement

Why is ABL Attractive for Investors?

Kyle McCarthy, private credit specialist, demystifies asset-based lending and outlines three key reasons why we believe investors should consider it today.

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Potential Benefits of Asset-Backed Finance

Income Generation

Focused on assets that seek to generate stable, front-loaded cash flows.

Diversification

Complements corporate-focused private credit exposure.

Structural Protections

Loans often backed by hard assets as collateral.

More to Know

Navigating the Private Credit Landscape: Insights and Opportunities

Private Credit Specialist Kyle McCarthy explores private credit's growth, highlighting benefits such as stable cash flows and diversification, while emphasising the importance of manager selection.

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Asset-Based Lending: Common Myths and Misconceptions Busted

ABL is often misunderstood; we dispel common myths that may be holding investors back from exploring the asset class.

The Why and How of Allocating to Asset-Based Lending

Why is asset-based lending considered the next frontier of private credit, and how does it fit within a broader allocation? Kyle McCarthy, private credit specialist, explains.

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PIMCO's Highest Conviction Themes in Asset-Based Lending

Consumer lending, aviation finance, and digital infrastructure: learn more about these exciting sectors in asset-based lending from private credit specialist Kyle McCarthy.

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Asset-Based Lending Provides Diversification to Private Credit

Higher interest rates and increased regulatory pressures have challenged traditional lenders, creating opportunities in private asset-based specialty finance markets.

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Actionable Alternatives: Synthetic Risk Transfer (SRT)

In this series, discover exciting private market opportunities and examples of how PIMCO pursues them to benefit our investors.

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Why PIMCO?

PIMCO has been at the forefront of asset-based finance markets with decades of experience investing in public and private opportunities.

PIMCO has been at the forefront of asset-based lending markets with decades of experience investing in public and private opportunities.

As of 30 June 2024. SOURCE: PIMCO. For illustrative purposes only. The views and expectations expressed are those of PIMCO.

Frequently Asked Questions

Specialty Finance, Asset-Based Lending, an Asset-Backed Finance are interchangeable terms that all refer to lending that occurs outside traditional corporate and commercial real estate markets and is secured by financial or hard assets.

Specialty finance investments can be categorized into 3 main types: consumer-related debt (e.g. student loans, auto loans, personal loans); non-consumer assets (e.g. aviation finance, data infrastructure, equipment leasing); and mortgages (e.g. U.S. residential mortgages, European mortgages, home improvement loans).

Many investors have allocated heavily to corporate direct lending in recent years. Adding asset-backed financing may be an attractive complement and diversifier, with the potential to increase returns and reduce volatility within a private credit allocation. This is driven by a borrower base, economic risk factors, and contractual cash flows that are all differentiating versus corporate direct lending. A backdrop of tighter regulations also creates an attractive entry point as banks pull back and barriers-to-entry are high. This is a key area of strength for PIMCO given asset-based lending's close ties with fixed income.

Specialty Finance is a sector where PIMCO has carved a niche, being one of the earlier entrants into private asset-based finance markets post-GFC. Leveraging our fixed income DNA, detailed loan-level underwriting and robust data analytics, we have become one of the largest investors in the space, with over US$165 billion deployed across mortgage, consumer, and asset-backed sectors (as of 31 Dec 2023). As a prominent liquidity provider and strategic partner to global banks, we navigate complex regulatory environments and offer alternative credit solutions. Our size and scale enable us to secure better loan terms and access non-mark-to-market financing.

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