Asset-based finance is a sector where PIMCO has established a strong presence, being one of the earlier entrants into private asset-based markets post-Global Financial Crisis (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. 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 purse favorable loan terms and access stable financing solutions that are not subject to daily market-price fluctuations.
Asset-Based Finance: Redefining the Private Credit Landscape
Potential Benefits of ABF
Income Generation
ABF investments may generate resilient current income and steady repayments through contractual cash flows.
Diversification
Investors may gain diversification to traditional forms of private credit through exposure to ABF's varied sectors and granular asset pools.
Downside Mitigation
We focus on detailed asset underwriting and creating resilient structures with the goal of generating attractive risk-adjusted returns.
Frequently Asked Questions
Asset-based finance, asset-based lending, asset-backed finance, and specialty 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.
Asset-based lending 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.
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Disclosures
The investment strategies discussed herein are speculative and involve a high degree of risk, including a loss of some or all capital. Investments in any asset classes described herein may be volatile, and investors should have the financial ability and be willing to accept such risks.
All investments contain risk and may lose value. Investments in residential/commercial mortgage loans and commercial real estate debt are subject to risks that include prepayment, delinquency, foreclosure, risks of loss, servicing risks and adverse regulatory developments, which risks may be heightened in the case of non-performing loans. Mortgage and asset-backed securities are highly complex instruments that may be sensitive to changes in interest rates and subject to early repayment risk. Real asset investments including those in data centers are subject to a variety of inherent risks that may have an adverse impact on the values of, and returns (if any) from, such investments, including changes in the general economic climate and local conditions. Structured products such as collateralized debt obligations are also highly complex instruments, typically involving a high degree of risk; use of these instruments may involve derivative instruments that could lose more than the principal amount invested. Private credit involves an investment in non-publicly traded securities which may be subject to illiquidity risk. Portfolios that invest in private credit may be leveraged and may engage in speculative investment practices that increase the risk of investment loss. Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to factors such as interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity. Bank loans are often less liquid than other types of debt instruments and general market and financial conditions may affect the prepayment of bank loans, as such the prepayments cannot be predicted with accuracy. There is no assurance that the liquidation of any collateral from a secured bank loan would satisfy the borrower’s obligation, or that such collateral could be liquidated. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. High-yield, lower-rated, securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Diversification does not ensure against loss. The use of leverage may cause a portfolio to liquidate positions when it may not be advantageous to do so to satisfy its obligations or to meet segregation requirements. Leverage, including borrowing, may cause a portfolio to be more volatile than if the portfolio had not been leveraged. Management risk is the risk that the investment techniques and risk analyses applied by an investment manager will not produce the desired results, and that certain policies or developments may affect the investment techniques available to the manager in connection with managing the strategy.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.
Certain information contained herein concerning economic trends and/or data is based on or derived from information provided by independent third-party sources. PIMCO believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world.
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