Private credit beyond direct lending: the role of Asset Based Finance for insurers

Alok Bedekar, Senior ABS Fund Manager, explores the key features and dynamics of Asset Based Finance, and the role it can potentially play in insurer portfolios. 

In an environment characterised by higher interest rates, greater macro uncertainty and evolving regulatory constraints, insurers are increasingly focused on assets that can deliver resilient income, capital efficiency and predictable outcomes. In this article, we make the case for why we believe Asset Based Finance (ABF) is a complementary addition to fixed income portfolios and could align closely with the needs of insurance balance sheets.

What is Asset Based Finance?

Asset Based Finance (ABF) is a subset of the private credit market and refers to a range of financial solutions where companies use their assets as collateral to secure funding. Put more simply, it refers to debt instruments secured against a diversified pool of loans or receivables with similar characteristics.

Read in full: Private credit beyond direct lending: the role of Asset Based Finance for insurers

For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.

Investment Risks

The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested.

Derivative Risk: Derivatives are highly sensitive to changes in underlying asset values and can magnify gains and losses.

Exchange Rate Risk: Investments denominated in foreign currencies may be affected by exchange-rate movements.

Liquidity Risk: Certain investments may be difficult to value or sell at a fair price.
Counterparty Risk: Failure of a counterparty or service provider could result in financial loss.

Leverage Risk: Borrowing can amplify both gains and losses.

Concentration Risk: Portfolios concentrated in fewer holdings, sectors or regions may be more volatile.

Liquidity and Dealing Risk: Delays in dealing or reduced sale proceeds may occur due to illiquid underlying assets.

Unrated Bonds: These are not rated by external agencies and rely on RLAM's internal assessments.

Sub-Investment Grade Risk: Lower-rated securities tend to be more volatile and less liquid.
Derivatives for Efficient Portfolio Management: Derivatives may be used only for risk and cost reduction purposes.

Overseas Markets Risk: Overseas investments may be impacted by currency movements and local market conditions.