The Evolving Landscape of Asset-Based Finance and Securities Products | Global Conference 2025

Panel Overview and Market Definition:

• Panelists (Edwin Wilches [PGM, $140B ABF], Jason Steiner [PIMCO, $250B ABF], Madeline O'Connell [HPS, $15B ABF], Jack Newmark [Fortress, $50B AUM], Matt Miller [Bayview, $20B ABF]) define Asset-Based Finance (ABF) as a "private credit 2.0" evolution, focusing on securitizable income-generating assets rather than traditional corporate loans.
• ABF is characterized as a portfolio completion tool offering diversification away from pure corporate credit risk, leveraging hard assets and contractual cash flows.
• The market encompasses a vast $40 trillion+ real economy, including consumer flows, commercial real estate, aviation, and esoteric assets (litigation, music royalties, patents), with a mix of investment grade (IG) and non-investment grade (NIG) tranches.
• A key trend is the convergence of public and private markets, with ABF increasingly capturing assets previously financed through public securitized products.

Current Market Dynamics and Risk Assessment:

• Homeowner Resilience: Consensus identifies homeowners (particularly those with low LTVs and fixed-rate mortgages from the zero-rate era) as the most resilient asset class; median US homeowner net worth is ~$400k vs. ~$10k for renters.
• FICO Score Distortion: Jason Steiner notes a "FICO drift" where average scores have shifted from ~680 to ~720-730 due to COVID-era government deferments and non-reporting of delinquencies, masking underlying credit deterioration.
• Subprime Auto Risks: Delinquencies in subprime auto are rising toward or past pre-COVID levels as stimulus support ends, presenting a specific risk vector for NIG portfolios.
• Home Price Valuation: While homeowners are resilient, Matt Miller warns home prices may be as rich as 2006 (price-to-income); however, low average LTVs suggest a collapse is unlikely unless mass unemployment occurs.
• Credit Box Widening: Jack Newmark and others warn that originators are widening credit boxes to generate volume for large insurance and pension inflows, leading to "sloppiness" and diminished covenant protections.
• Document Degradation: There is observed degradation in legal documentation and covenants (e.g., liability management exercises, ability to re-lever assets) similar to public corporate markets, increasing downside risk.
• Illiquidity Premium: Investors are increasingly paid for liquidity and complexity premiums rather than directional credit risk; mispricing occurs when spreads are too narrow for the underlying risk profile.

Capital Structure and Cost of Capital:

• Investment Grade Shift: Madeline O'Connell identifies GPLP solutions (Fund Finance, GP/LP level financings) as the highest risk-adjusted return area for IG capital, targeting $5B–$25B off-balance-sheet deals for large public companies.
• Capital Influx: The insurance sector has doubled its private ABF deployment over the last four years; pension funds and retail investors are now entering the space, creating pressure to source more products.
• Cost of Capital Advantage: PGM (Edwin) highlights its ability to structure the same asset pool for different investors (e.g., whole loans for IG, senior tranches for NIG) by leveraging diverse capital sources, including bank rediscount lines.
• Spread Compression: With abundant capital chasing assets, spreads are compressing, particularly in IG consumer credit; some panelists note that "near-prime" assets can be riskier than subprime if yields are too compressed to absorb losses.

Sourcing Strategies and Incentive Alignment:

• "Rent vs. Own" Debate:
  • Bayview (Matt): Operates as a large owner of originators and Mortgage Servicing Rights (MSR), creating a moat by keeping origination at break-even to maximize ABF investor returns.
  • PGM & HPS: Prefer a "rent" model (partnering with originators) to avoid conflicts of interest where the originator prioritizes volume/fees over asset performance.
  • Fortress (Jack): A "minnow" strategy focusing on creative, complex, illiquid structures (e.g., litigation receivables, build-to-rent land deals) to differentiate from larger competitors.
• Incentive Conflicts: Panelists warn against owning originators if it creates a conflict between equity gains (driven by volume) and credit performance; minority stakes or warrants are suggested as a middle ground to align incentives without full capital commitment.
• Portfolio Construction: Jason Steiner notes the challenge of redeploying monthly principal paydowns from amortizing assets, requiring both large bank-sourced portfolio deals and relationships with smaller fintechs.
• Due Diligence: Smaller, lightly capitalized fintech partners require significant equity "skin in the game," haircut capital buffers, and strict covenants to manage early-stage risk.

Forward-Looking Statements and Strategic Positioning:

• Recession Prep: In a potential stagflationary environment, panelists recommend pivoting up in credit quality (IG), avoiding binary/levered structures, and ensuring portfolio flexibility via amortizing assets.
• Market Efficiency: As the market matures, the distinction between public and private ABF may blur regarding structure and spreads, but private ABF may retain liquidity advantages during volatility for IG assets.
• Risk Management: Investors must move beyond rear-view data (historical FICO/delinquency rates) to forward-looking scenario analysis, accounting for prepay speeds and the "double whammy" of strong credits prepaying while weak credits default.
• Future Opportunities: Jason Steiner projects that despite the risks, the "homeowner" asset class remains the most resilient for the next cycle, even in a downturn, due to accumulated equity and low leverage.
• ESG and Data: The industry is shifting toward high-volume, low-frequency data (e.g., monthly mortgage servicing data) to slice and dice risk, moving away from simple credit score reliance.