Posted by PPIF on 30 September 2026
The rise of asset-backed finance: Tailwinds, opportunities, and investment strategies
A decade-long focus on private credit allocations to direct lending has paved the way for asset-backed finance (ABF) to boom. ABF now emerges as a significant part of the financial market, and Nadine Buckland, Founder & CEO at Zenzic Capital, shares her experience navigating this nuanced space and key opportunities within it.
Key takeaways for investors:
- ABF is here for the long-term; it's not a short-term trend. Basel III is pushing banks out of quality mid-market lending, creating a durable opportunity for non-bank lenders.
- Diversification within private credit is driving flows toward asset-backed finance and real estate credit, as allocators seek exposure beyond overcrowded direct lending.
- The lower mid-market (£20–50M tickets) offers attactive risk-adjusted returns. Less competition means lenders can maintain disciplined underwriting without sacrificing yield.
- Larger-ticket private credit is getting crowded. Excess capital is eroding returns and weakening covenants, which is a dynamic disciplined managers are avoiding.
- Structuring expertise is the key differentiator. Bespoke, covenant-heavy loan design wins borrowers who can't access bank financing.
What's driving asset-backed finance's momentum?
Private credit allocations have predominantly targeted direct lending. Yet, Buckland points out, this specific strategy only represents a sub-sector of the broader market. Investors now seek diversified portfolios, influenced by recent market shifts. Asset-backed financing provides a structured way to diversify, offering assurance and attractive prospects in both asset-backed and real estate credit sectors.
One cannot overlook regulatory influences in this evolution. Basel III, with its stringent regulatory requirements, increasingly restricts banks from lending to (what can be considered as) high-quality borrowers. Consequently, banks face prohibitive capital costs per loan, presenting a clear window for non-bank lenders to capture a larger market share.
What can borrowers gain with non-bank lenders?
Non-bank lenders are adapting proactively within this landscape. There is a strong emphasis on understanding the asset class, rich structuring expertise, and the ability to provide tailored loan solutions. While banks often shy away due to the capital constraints, non-bank lenders offer flexibility and intimate knowledge of assets, enabling them to better cater to borrower needs.
These lenders also generally cater to the lower mid-market, where there is a notable scarcity of capital. Traditionally, smaller borrowers find it challenging to secure capital in traditional banking avenues. Non-bank lending rises to this occasion, offering high-quality capital partnerships in the lower mid-market, a segment teeming with opportunity.
How to balance returns with stability in ABF?
A critical factor in asset-backed finance's rising allure is its ability to maintain downside protection while delivering returns. The advantage of operating within the lower mid-market, where fewer lenders compete, is the ability to ensure disciplined underwriting practices. This scenario allows for bespoke loan structuring with strong covenants, sidestepping the dilution in returns that often plagues larger, more competitive loan markets.
In contrast, markets for larger ticket loans experience intense competition, causing a race to reduce returns and covenant strength. By strategically choosing not to participate in this high-pressure arena, lenders can preserve return integrity and operational stability.
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