Asset-Based Finance Goes Mainstream: Long History, Expanding Scope
Asset-Based Finance (“ABF”) in portfolios stand to benefit from lower correlations, clearer diversification, and superior specialization compared to vanilla credit products.
“Origination and active management capacities are going to be a critical differentiator in the cycle ahead. This is central to our investments across the Rithm family of companies and the partnerships we have created.” - Michael Nierenberg, CEO, President and Chairman of the Board, Rithm Capital.
Executive Summary
Higher bank regulatory capital is resulting in a rapidly growing ABF sector outside the banking system today.
Banks are working in close partnership with private capital, who offer specialized skills to better manage ABF assets as banks exit non-economic business lines.
ABF products will be a critical part of the financial markets ahead. Liquid capital markets are constrained as banks pull back. Demands are also growing to fund working capital needs and fixed assets in sectors exposed to funding gaps to emerging or specialized sectors of the economy.
ABF is tangentially related to asset-backed securities (“ABS”), which channels homogenous and granular assets through static pooling, compared to ABF, which includes more bespoke, dynamically managed assets and their related risks. Like other securitized assets, ABF products sit in bankruptcy remote vehicles that are cash generating or marketable.
Investment managers look to ABF to diversify from “EBITDA” exposed cashflows in corporate lending. Investors look to ABF to access yield premiums.
Rithm’s asset generation and active management capabilities span across ABF, ranging from its operating companies Newrez, Shellpoint, Genesis Capital, Adoor, Rithm CRE and the holding company itself.
Rithm has securitized over $55 billion across a range of asset classes, many of which fall into the ABF sector, benefiting from the sponsorship of a broad variety of institutional investors(1).
Rithm’s experience in origination, direct lending, and active management are specialized capabilities that stand to be a critical differentiator in the cycle ahead.
McKinsey has sized the addressable market for ABF at $30tn+, primarily comprised of consumer finance and a range of securitized products(2). Rithm intends to leverage its deep expertise in these asset classes via its vertically integrated platform, which includes direct origination, servicing, and active management. The economic cycle ahead will draw on specialized strengths, as not all ABF assets can be best managed by all private credit managers.
(1) Source: Bloomberg. Represents cumulative securitizations from Rithm’s inception in 2013 through September 30, 2024.
(2) Source: McKinsey & Company, The next era of private credit.
Please sign up below to receive the full publication via email:
