Asset-Based Lending: Take Advantage of Equity-Like Return Potential

Text on screen: View From the Investment Committee, Asset-Based Lending: Take Advantage of Equity-Like Return Potential

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Text on screen: DANIEL J. IVASCYN, Group Chief Investment Officer

Dan Ivascyn: Specialty finance asset-backed or asset-based lending, continues to be one of our favorite sectors of the market. We’re overweight asset-backed risk across the more traditional areas, but it's a huge opportunity for private investors as well. First, going all the way back to the global financial crisis, various forms of asset backed lending, mortgage lending, created a lot of problems back then. There was a massive regulatory response. These new regulations and investor conservatism have led to these sectors remaining high quality from an underwriting perspective. So you have a attractive credit profile relative to more traditional non-financial corporate credit and we think that that gap in quality is significant and now you have a situation where the technicals are beneficial up to deploying more capital.

Our regional banks are buying far less of this risk. Those banks that originate this type of risk are looking to lay off that risk. Some of the large global commercial banks are dealing with their own regulatory challenges as well. And the credit quality on a relative basis is attractive. So, you could pick up resiliency, you could pick up better documentation in this space and now you're able to do that from highly motivated sellers in the marketplace. So consistent with the view that there's still significant hard landing risks of the underlying economy, we think this is a near perfect area of the market to generate in some areas, equity-like returns with predictable cash flow profiles and a quality that's very rare in these markets.

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