Private credit encompasses a dizzying array of strategies – from well-understood corporate direct lending to more esoteric music royalties, fund financing, litigation finance, and real estate credit. Direct lending remains the center of gravity. For allocators looking to build out large scale private credit portfolios, where to go after direct lending can be a challenge. We believe asset-based finance (“ABF”) is the answer – a truly scalable opportunity that focuses on income generation and capital preservation.
Private credit has been around for about 5,500 years by our count, and the original credit investments were ABF investments in the form of agricultural financing. But the breakneck growth and associated column inches are a more recent phenomenon. The market as we know it today developed in three stages.
Private Credit 1.0
In the 1990s and 2000s, middle market direct lending was generally controlled by the European investment banks and some of the mid-tier US Investment Banks. There were a handful of asset managers (Highbridge, Cerberus, Ares, Golub, and Antares) leading the initial salvos against the banks, but they represented a rounding error within the broader levered credit market. Then came the Global Financial Crisis (the “GFC”) in 2008.
Almost two decades on from the GFC, it’s easy to forget the extent of the chaos. The global financial system avoided collapse, but banks needed to shed distressed assets quickly. Asset managers began raising private equity-style drawdown funds to acquire and work out deeply distressed assets. This heralded the beginning of private credit 1.0.
Read the full ‘Sponsored Commentary’ now at the link below
Supporting documents
Click link to download and view these files5,500 years old & the next big thing – asset-based finance
PDF, Size 0.15 mb
