The case for asset-backed lending in private credit portfolios

As the private credit market continues to expand and evolve, asset-backed lending (ABL) has emerged as a compelling strategy for investors seeking a diversified return stream. ABL’s defining features are its reliance on tangible or financial assets as collateral and its corresponding limited loss potential and ability to offer cash flows regardless of broad market conditions. These qualities tend to align with the priorities of insurance companies, pensions, endowments, and other institutional investors looking for income potential, quality risk-adjusted returns, and a defensive allocation in their portfolios

¹Source: Preqin, as of December 2024.
²Source: Apollo Analysts Estimates, as of February 2025.
³ “All-weather” speaks to the fact that ABL strategies are designed with the goal of performing consistently across market cycles, seeking to offer stability and opportunity in both expansionary and contractionary environments.
⁴Victory Park Capital, as of December 2024.

IMPORTANT INFORMATION

This white paper is provided for educational and informational purposes only. The contents hereof should not be construed as investment, legal, tax or other advice. Unless otherwise noted, statements contained in this white paper are based on current expectations, estimates, projections, opinions and beliefs of VPC professionals regarding general market activity, trends and outlook as of the date hereof. Such statements involve known and unknown risks and uncertainties, and undue reliance should not be placed thereon. Neither VPC nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein should be relied upon as a promise or representation as to past or future performance.

Any risk management process discussed includes an effort to monitor and manage risk which should not be confused with and does not imply low risk or the ability to control certain risk factors.

Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.

Private Credit refers to direct lending or debt financing outside of traditional banking, typically involving non-publicly traded companies. It may offer higher returns but comes with increased risk including limited liquidity, reliance on the borrower’s financial health, and less regulatory oversight compared to traditional bank lending.

Asset Backed Lending involves loans secured by assets, where the loan value is based on the value of the collateral offered. While it provides a security cushion, it carries risks such as collateral depreciation, borrower default, and potential liquidity constraints during market downturns.