This expert Q&A was originally published in Private Debt Investor’s October 2025 Specialty Finance publication. It has been reprinted with the permission of PEI. Additional links have been added in the version that appears below. A PDF of Specialty Finance is available within the ICG Client Lounge.
Asset-backed finance has grown increasingly prevalent in recent years. What’s driving this?
We saw an expansion of the private asset-backed finance (ABF) market following the global financial crisis in 2008, when regulatory and capital constraints forced banks to delever and streamline their businesses, creating opportunities for other capital providers to fill this financing gap.
Many borrowers were forced to seek alternative sources of credit, emphasising certainty of execution and greater flexibility – features that non-bank lenders were able to offer. As a result, in the period since, non-bank lenders have grown significantly, both in numbers and size.
In addition, institutional investor interest in ABF increased meaningfully, starting in 2023 when higher interest rates slowed private equity exits and LP distributions, as many private credit investors looked for more predictable cashflows, diversification and stable realised returns.
How would you define your approach to ABF, and what makes it unique?
At ICG, we target enhanced, risk-adjusted returns for clients by opportunistically allocating across a broad spectrum of asset classes, regions, currencies and capital structures. Such flexibility provides us with the freedom to capitalise on a rapidly evolving investment universe, while taking advantage of dislocations and dynamics that may occur at different stages of the economic cycle.
Within the ABF opportunity set, we tend to focus on diversified portfolios of financial assets for which there are no reliable third-party research tools, which acts as a natural barrier to entry. We often find attractive opportunities in spaces where there is less scalability and less standardisation. Investments in this space are generally between $20 million-$100 million, as we find larger transaction sizes typically involve auctions arranged by a professional adviser, offering less flexibility on terms and producing tighter pricing as a result of a competitive process.
What opportunities are you seeing to capitalise on credit dislocations?
The ABF market has witnessed continued capital inflows and increasing investor interest, which has caused a general tightening in spreads, leaving fewer credit dislocations. However, we believe opportunities exist in sectors that are not readily scalable to large capital inflows and involving non-standardised underwriting.
We see attractive investment opportunities in three key areas: speciality finance companies originating loans to small and medium size enterprises (SME) or consumers; investments backed by pools of receivables, including those related to corporate settlements, healthcare and trade finance; and significant risk transfer (SRT) transactions providing exposure to differentiated assets such as SME loans, equipment financing and agricultural loans.
We often find attractive opportunities in spaces where there is less scalability and less standardisation
Are any geographies more attractive to you right now?
Demand for ABF capital will continue to be global, despite being concentrated in the US and Europe. Because most of our senior investment team have lived and worked in multiple geographies around the globe, we have less of a bias to the US and are more geographically agnostic. Due to our focus on excess returns and inefficiencies, we have recently found many of our best opportunities in Europe.
What does the shifting macroeconomic outlook mean for your investment approach?
We are cautious about overreacting to ad-hoc US policy announcements. However, although we share the relatively benign economic outlook that market pricing implies, we are conscious that the market may not fully reflect the future effect of US policies. For example, it appears that the final level of US tariffs will be historically high, which may lead to a greater economic burden on consumer finances and/or corporate profits.
Current US policy with respect to immigration may constrain labour supply, potentially putting upward pressure on wages and limiting higher GDP growth. The fiscal burden of the recently passed tax and spending bill is highly dependent on future US economic growth rates, and longer tenor bond yields may remain higher for longer, even if the US Federal Reserve cuts short-term rates, until market concern regarding future US debt issuance abates.
This potential for higher-for-longer bond yields and lower-than-normal economic growth may result in ongoing headwinds for borrowers. Therefore, we are vigilant on the state of the weakest corporate, commercial real estate and consumer borrowers and are primarily focused on ABF tranches that benefit from a robust cushion against credit losses, which may allow such investments to withstand an economic slowdown and offer high absolute cash yields.
Which types of underlying assets are attracting the most investor interest today?
Investor interest in ABF assets remains broad-based. Vanilla SRT transactions backed by large-cap corporate loans and revolvers are particularly in vogue. In addition to this, traditional sectors such as consumer auto loans, consumer credit card receivables and consumer unsecured loans have seen tightening of spreads. Due to the surge in research and development related to artificial intelligence, ABF backed by data centres is also seeing growing investor interest.
How does ABF compare with other segments of private credit in terms of risk-return profile?
ABF has the ability to offer greater realised returns for the same – or less – credit risk relative to other forms of private credit. Opportunities in ABF often arise from the specialist expertise required to underwrite and structure contractual cashflows from large pools of obligors, which demand a different skillset than traditional corporate credit lending backed by the operating cashflows of a single obligor. Despite its recent growth, we believe that the ABF market remains underpenetrated, creating a favourable supply-demand imbalance.
A major difference between ABF and other forms of corporate private credit stems from the granularity of its pool of underlying credit exposures. A well-diversified corporate direct lending portfolio may comprise fewer than 60 companies. A well-diversified ABF portfolio, including corporate and consumer exposures, can consist of tens of thousands of underlying credit positions (on a look-through basis) because each investment is backed by its own underlying asset portfolio. This is one of the reasons why ABF can offer more predictable, stable realised returns.
In addition, an important feature of ABF is its low reliance on the business plan, management team, profit growth, exit strategy or exit valuation of an individual company, a characteristic that may fit well within a private credit allocation already invested in corporate lending.
Our senior investment team members were trained as structurers at a time when many of the now-mature asset classes within ABF were in their infancy
Are you seeing increased appetite for ABF among institutional investors?
We have definitely seen increased ap- petite from LPs for ABF over the past several years, as investors have become aware of the benefits an allocation to ABF brings to an allocator’s private credit bucket.
Based on recent frustrations LPs have experienced with low DPIs for other asset classes, it is unsurprising that there is increased appetite for ABF. ABF investments are generally amortising and offer shorter duration cashflows, mitigating the J-curve typically seen in private equity and corporate credit.
In a world where other asset classes are becoming increasingly commoditised, there remains a non-standardisation premium associated with ABF, creating opportunities for enhanced returns. The breadth of our ABF expertise enables us to capitalise on market inefficiencies stemming from regulatory constraints, fragmented investor bases and inconsistent data.
Our senior investment team members were trained as structurers at a time when many of the now mature asset classes within ABF were in their infancy, and we were involved in the creation of many of the structures still used today. This has given us a fundamental understanding of securitisation mechanics and nuances and allows us to apply our existing knowledge and expertise to new privately originated investments.
How do you expect the ABF landscape to evolve in the coming years?
The ABF landscape will continue to proliferate in both breadth and size, as the themes of bank retrenchment and regulation create new opportunities and asset types, fulfilling the growing demand from LPs for strategies in this space.
Even though we have seen significant growth in AUM and funds launched in the last couple of years, we believe we are still in the early stages of growth of the ABF asset class, particularly in relation to other private assets such as direct corporate lending.
At ICG, we have an established, experienced ABF platform with a best-in-class track record that has invested more than $6 billion since 2014. As a result, we are well placed to provide our LPs with a differentiated, excess return-focused ABF strategy that has a proven track record through multiple cycles.
Past performance is not a reliable indicator of future results. Investing in private markets involves substantial risks, including the risk of capital loss. The value of investments can up as well as down. Diversification does not guarantee a profit or protect against losses.
Back