Asset-backed lending is often touted as the ‘new direct lending’, predicted to overtake the asset class that has dominated alternative credit to date.
But one of the largest names in alternative asset management has now argued that the two segments should be integrated in investors’ portfolios to reduce risk, as part of the “next evolution of private credit”.
In a new paper, Apollo Global Management noted the continuous rise of private credit, as banks retreat from lending amid tighter regulation and consolidation.
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The US firm argued that traditional corporate direct lending alone no longer captures the full opportunity, and that combining it with asset-backed finance can enhance returns while reducing risk.
The firm said that private credit’s yield, structure and seniority characteristics have broadened its role in investor portfolios, with asset-backed finance and direct lending addressing different areas of demand.
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“Both asset-backed finance and direct lending aim to protect principal and deliver resilient income, asset-backed finance via the underlying collateral pool and credit enhancement, and direct lending via enterprise-level seniority, covenants and controls,” Apollo said. “Pairing them together can diversify risk drivers, deployment profiles and market cycle sensitivities.”
Apollo described the approach as part of the “next evolution of private credit”, positioning asset-backed lending as a natural complement to direct corporate loans as investors seek diversification and downside protection in a maturing market.
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