Private credit has enjoyed considerable attention of late with asset managers espousing the various benefits of investing from diversification, liquidity premium and decent yields.
Yet asset backed lending – where lenders secure loans against specific assets held by the borrower – has stayed in the shadows.
However, this is set to change dramatically over the decade.
The global asset-backed lending (ABL) market was valued at USD 625.35 billion in 2023 and the total asset-based lending revenue is expected to grow at a compound annual growth rate of 11.32 per cent from 2024 to 2030, reaching nearly USD1324.75 billion.
Investors are, in part, drawn to the asset class’s excellent historical track record on defaults. Insight Investment reports that European ABS recorded a total cumulative loss of only 0.35 per cent since 2000, 70 per cent of which was related to the global financial crisis.
This compares to a private credit default rate of 5 per cent recorded by Fitch Ratings in August 2024.
But for asset managers offering ABL strategies there are significant complexities to overcome.
Cesar Estrada, Private Markets Segment Head at Arcesium, a fintech company providing data-centric cloud-based solutions to alternative investment managers, says: “ABL is more complex, but first and foremost, it is new to investment managers who are doing it for the first time. They need more technology, and it requires more attention and care.”
He continues: “On the investment side, ABL brings higher volume, and with that comes complexity in the management of data and of an ecosystem that now includes new players. On the investor in addition to investing in completely illiquid funds, we are seeing a clearer demand for evergreen funds [also known as semi-liquid funds]. These offer pockets of liquidity that open up once a month or once a quarter which also creates additional complexity.”
Estrada describes the ABL system as “decentralised and clunky” with participants applying disparate approaches and models to loans.
“Arcesium is in the middle, bringing together all of those sources and reconciling them,” he says.
This January Arcesium, announced it had signed an agreement with Neuberger Berman Specialty Finance (NBSF) to scale its asset-based financing strategy.
Arcesium will provide the technological infrastructure required to manage the complete lifecycle and complexities of asset-based financing.
Peter Sterling, Head of the Specialty Finance team at Neuberger Berman, says: “Asset-based financing strategies are of interest to our clients as their private markets exposure continues to grow. We selected Arcesium’s solution to streamline our consumer loan operational workflows and harmonise multiple systems and data sources. True data independence and control over the full lifecycle of our consumer loans are essential for us in the asset-based finance space.”
