What is asset-based finance?
Asset-based finance, also known as asset-backed finance, asset-based lending, and specialty finance, refers to private lending that occurs outside of traditional corporate and commercial real estate markets. It helps finance the everyday activities of businesses and consumers, from mortgages to credit cards to public transportation. ABF represents the private-market counterpart to public securitized investments, such as mortgage-backed securities.
ABF loans are often secured by hard assets, such as a house or airplane, or financial collateral like business receivables and intellectual property rights.
Examples of Asset-Based Finance
SOURCE: PIMCO
For illustrative purposes only. All investments contain risk and may lose value. Diversification does not ensure against loss. The views expressed are those of PIMCO, based on information available to PIMCO, and are subject to change without notice, based on market and other conditions. There can be no assurance that any investment strategy will achieve the investment objectives or that the desired results will be realized.
These loans are typically classified into two key categories - consumer-related (including mortgages, credit card receivables, and auto loans) and non-consumer-related (including aviation finance, equipment finance, and small business loans).
What makes ABF an area of interest now?
In recent years, higher interest rates, tighter financial conditions, and regional banking turmoil have created challenges for borrowers who previously relied on traditional funding sources like banks. These funding sources have also generally stepped back from certain types of lending amid the challenges they’ve faced since the Global Financial Crisis as well as new regulations. These include the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III, and CECL, which affect loan accounting rules and capital reserve requirements, especially among larger, global, systemically-important banks.
As a result, certain financing activity is shifting from traditional loan providers to alternative lenders, such as institutional investors, private equity firms, and corporate investors. Because alternative lenders are subject to less stringent capital reserve requirements, they can offer more flexible funding solutions to address financing gaps. However, this lower reserve threshold may heighten investor risk by limiting the lender’s capacity to absorb losses during periods of financial stress.
What are the potential benefits of asset-based finance?
ABF can add value to investor portfolios in several ways
As of June 30, 2025. SOURCE: PIMCO
For illustrative purposes only. All investments contain risk and may lose value. Diversification does not ensure against loss. The views expressed are those of PIMCO, based on information available to PIMCO, and are subject to change without notice, based on market and other conditions. There can be no assurance that any investment strategy will achieve the investment objectives or that the desired results will be realized.
How can an investor use ABF in a portfolio?
Investors may complement, and diversify against, traditional forms of private credit, such as corporate direct lending, through exposure to ABF’s varied sectors and granular asset pools.
Three primary ways ABF can potentially complement and diversify corporate direct lending investments
SOURCE: PIMCO
For illustrative purposes only. All investments contain risk and may lose value. Diversification does not ensure against loss. The views expressed are those of PIMCO, based on information available to PIMCO, and are subject to change without notice, based on market and other conditions. There can be no assurance that any investment strategy will achieve the investment objectives or that the desired results will be realized.
What are the risks?
ABF can offer attractive return potential, but it also comes with important risks—like credit, liquidity, concentration, and legal or regulatory challenges. These investments span different asset classes and might not always meet business goals or deliver expected returns, especially when interest rates change. Since alternative lenders don’t have to hold as much capital in reserve, they may be less able to handle losses during tough financial times, which adds risk for investors. For those considering ABF, thorough due diligence, robust risk assessment, and a disciplined, active investment strategy are essential.