The $5tn (£4tn) asset-backed finance (ABF) market presents an important alternative for various lenders after business banks scaled again their actions within the area, in line with Oaktree.
Within the newest month-to-month round-up from the choice asset supervisor, co-chief executives Robert O’Leary and Armen Panossian famous that “ABF has been remodeled from a low-return, bank-dominated asset class right into a extremely engaging space of alternative for various lenders”.
Tighter laws, increased rates of interest, quantitative tightening and threat aversion have led business banks to retrench from asset financing, they mentioned.
Learn extra: Non-public debt diversifies from direct lending
ABF contains lending towards, or investing in, swimming pools of contractual belongings, comparable to tools leases, client loans, residential mortgages, and royalty agreements.
Buyers are drawn to the variety of the underlying collateral obtainable out there, which reduces idiosyncratic threat.
Oaktree additionally highlighted that ABF belongings are contractual cost obligations with predictable cashflows, so buyers are usually capable of recoup a piece of their capital throughout the anticipated timeframe.
Learn extra: Non-public debt AUM handed $1.6trn final yr amid “explosive” development
Moreover, ABF usually presents “significant structural protections”, Oaktree mentioned.
If the worth of the belongings decline considerably, cashflows are normally redirected to repay essentially the most senior lenders, and compelled asset gross sales or contentious negotiated restructurings are usually averted.
Oaktree mentioned it believes that the prime drivers of ABL’s transformation into a possibility for various lenders – specifically elevated laws and the top of the zero-interest-rate period – are secular shifts, not short-term developments.
“Thus, we consider ABF isn’t a short-term alternative, however moderately the following frontier of personal credit score,” it mentioned.
Learn extra: Moody’s: Non-public credit score returns may fall this yr
