Q&A spotlight: Unlocking asset-based finance | Insight Investment

What differentiates asset-based finance (ABF) from traditional ABS or private direct lending?

ABF typically refers to asset-secured financing opportunities available in private or ‘club’ formats rather than public syndications. ABF can be backed by more traditional asset classes like auto loans and residential or commercial real estate, or by newer or esoteric collateral types like specialty finance, transportation and infrastructure.

The deals differ from private direct lending as the credit is based on bankruptcy-remote hard assets or pools of financial assets (as with traditional ABS) rather than the borrower’s balance sheet.

Does the appeal of ABF deals differ by investor type?

The main draw for all clients is a higher spread than corporate bonds (or public ABS) for similar credit risk, but with lower liquidity and higher complexity.

For insurance clients, this can be especially appealing, as lower liquidity is typically not a disadvantage given the nature of their liabilities. The same logic may apply to pension plans with cashflow‑aware strategies.

Additionally, both insurance companies and pension plans often look for asset customization to match their liability profiles. ABF can lend itself to this given the negotiable and customizable nature of deal structures.

How can ABF deals be customized to investor needs?

Given the typically private nature of asset-based finance, issuers and investors can work together to structure deals to target specific needs.

For example, within oil and gas-related ABS, the structures will often split out the more stable production operations from the less certain exploration ventures, to attract finance from ABS investors looking for potentially dependable cashflows.

Similar can be said for fiber optic securitizations, which to date have primarily been exposed to mature, revenue-generating operations, rather than the less certain cashflows relating to new development or heavy capital spending.

Separating out exposures like this is generally not feasible in the corporate bond market.

What do you think are the largest misconceptions around ABF?

Esoteric ABF collateral types (like whole business securitizations, timeshares, containers, aircraft, media royalties, and future flows) are often new to investors so they can be under the impression that these are new credit exposures without long, established track records.

However, many of them have been securitized as corporate assets as far back as the 1990s. So those who have the institutional memory, historical data exists across multiple cycles.

In other cases, these collateral types were previously funded by bank balance sheets, or even corporate bond markets such as with oil & gas PDP (proved developed producing) reserves, so the data exists there as well. 

This is not to suggest that there are no genuinely new asset types. There are, particularly those emerging from the new digital economy, such as AI‑driven data center infrastructure and digital intellectual‑property assets. Sectors like music royalties are also re-emerging in a transformed environment.

Discipline is particularly crucial in these sectors, so our focus is on responsibly applying proven models and prioritizing predictability and stability of future cashflows.

Figure 1: The new economy is driving genuinely novel exposures¹

Does the ABF opportunity vary by geography or region?

In the US, institutional clients often require or strongly prefer an external rating for ABF opportunities. Outside the US, sometimes clients may not. If needed, they may hire a bank to provide a rating or self-structure a rating.

Opportunities may also reflect different regulations, as European regimes in some areas can be more creditor friendly. Some sectors, like aircraft, home equity loans and some areas of digital infrastructure are less common outside the US. European markets are also subject to EU requirements, such as risk retention rules.

What do you see being the greatest opportunities over the next three years?

Innovation in the market is accelerating and continues to excite us.

We believe the opportunity in digital infrastructure should continue to expand given the push toward cloud computing and AI. Increasingly, as banks continue to retrench, we expect pension and insurance companies to find themselves natural lenders in these assets and the growth of the market may open doors for new asset types. Given the sheer size of bank financing, just a small pullback could create a large ABF opportunity set.

We also expect to see more globalization of ABF, with the potential for skilled global investors to integrate non-US assets into portfolios.

How about the greatest challenges?

There could be a challenge in investors increasingly seeing private credit and ABF as a ‘gold rush’. We see new entrants who may act more like ‘tourists’. As exciting as the opportunity may be, wider interest signals the need to maintain credit discipline and watch carefully for signs of mismanagement of asset-liability liquidity.

What capabilities are essential for success in ABF?

We believe crucial elements include deep institutional knowledge and experience. Internal credit research resources are important.

At Insight, we approach ABF with a long-term investment horizon, fully acknowledging and embracing the relative illiquidity of these investments.

Strong market relationships and in-house legal expertise further enhance an investor’s capacity to navigate complex transactions and help deliver customized outcomes for clients.

Do you organize your investment teams across public and private investments?

No, our strong preference is to look at public and private investments together within a single team, with strict compliance processes regarding private information.

Frequently, issuers operate in both markets, and there are often relative value opportunities between their private and public deals. You may be surprised, but sometimes, we see more value in the public deal when private markets get too crowded.