Blackrock Sees Private Credit Strategies in ABF
Private credit lenders can assume a larger role in asset-based finance (ABF), potentially filling ‘financing gaps’ as banks grow more restrictive in their lending practices, according to analysis by BlackRock.
The world’s largest asset manager, with $10.5 trillion in assets under management as of the first quarter of this year, defined private debt as any financing originated, structured, and then held directly by the lender.
According to Blackrock, this definition, which includes lending for consumer debt, hard assets, commercial financing, and intellectual property, among other categories, is predicted to be a $5.5 trillion market in the U.S. per an April 2024 by Oliver Wyman analysis.
The investment management firm refers to this as ABF, which can include collateral with a wide range of maturities, ranging from short-term consumer loans and business receivables to long-term financing structures.
Currently, bank balance sheets fund approximately 54% of this activity, non-bank lending funds another 34%, and public securitization funds the remaining 12%. According to Oliver Wyman, the private credit universe funds $200 billion to $300 billion in non-bank lending, resulting in an overall market share of less than 5%.
Including outstanding residential mortgages and commercial real estate would increase the broader market for asset-based finance in the U.S. to $26 trillion, noted Blackrock.
“Incorporating ABF into a borrower’s capital structure may diversify funding sources by providing another avenue for lending away from the banks and public debt markets,” wrote Blackrock. “This may be especially relevant for a business in a significant growth phase, which may need access to liquidity to fund expansion plans or acquisitions.”
Banks have historically dominated such types of ABF and continue to hold a significant market share. However, with lending standards from U.S. and European banks remaining tight, particularly in consumer credit and commercial real estate, many market participants have become increasingly concerned about the possibility of structural shifts in the banking sector, in which portions of this financing may migrate to non-bank lending channels, added Blackrock.