Private asset-based finance (ABF) helps finance homes, commercial real estate, data centers, aircraft, consumer loans, and infrastructure, creating an opportunity set in the trillions.
From a portfolio construction perspective, ABF may offer a combination of income potential, diversification, inflation mitigation, and risk management benefits.
As financing needs grow across sectors ranging from infrastructure and real estate to consumer finance and digital assets, ABF appears positioned to play an important role, in our view.
This article is written in partnership with Barings.
Asset-based finance (ABF) has become an important segment of the private credit market. While direct lending has attracted significant investor attention in recent years, ABF represents a much broader universe of investments that help finance everything from homes and commercial real estate to data centers, aircraft, consumer loans, and infrastructure projects. As traditional banks have reduced lending activity in certain areas, private capital has increasingly stepped in to help meet growing financing needs, creating an opportunity set in the trillions that’s under-owned in our view.
At its core, ABF involves lending against or investing in pools of identifiable assets designed to generate contractual cash flows. Rather than primarily relying on a corporate borrower's creditworthiness, these investments derive value and repayment support from underlying assets and the cash flows they produce.
ABF spans a diverse range of sectors that can generally be classified into two categories: hard assets and financial assets. Hard assets include commercial real estate, residential mortgages, transportation assets, renewable energy projects, and digital infrastructure. Financial assets include consumer receivables and securitized corporate loans.
ABF investments include commercial mortgage-backed securities, equipment leasing, aircraft finance, data center financing, credit card receivables, auto loans, and student loans. These financing solutions support many of the activities that underpin everyday economic activity.
One of the most compelling aspects of ABF is its size. While managed private credit assets have grown substantially, the market for private ABF remains significantly larger than the traditional corporate private credit market. According to Invesco's analysis, the total addressable market for private credit across commercial finance, commercial real estate, infrastructure, consumer finance, and securitized products is approximately $28 trillion, compared with approximately $6 trillion for corporate private credit.1
Despite the scale of the opportunity, many investors’ bond portfolios remain heavily concentrated in corporate and government-backed credit. Asset-based credit often represents a relatively small allocation, suggesting that ABF may remain under-owned relative to its potential importance within diversified portfolios.
From a portfolio construction perspective, ABF may offer a combination of income potential, diversification, inflation mitigation, and risk management benefits. Invesco's analysis found that a hypothetical allocation to private ABF improved portfolio yield while reducing overall volatility, measured by standard deviation, compared with a traditional 60/40 stock-and-bond portfolio, while maintaining similar return levels over the analyzed period.
| Traditional 60% US stocks/40% US bonds portfolio | Portfolio with 20% ABF/50% US stocks/30% US bonds |
|---|---|---|
Return | 9.0% | 9.0% |
Risk | 9.9% | 8.7% |
Yield | 2.4% | 3.7% |
Source: Invesco Solutions, the period from Jan. 1, 2015 to Dec. 31, 2025 covers the minimum common start for the indexes displayed; data as of June 24, 2026. US stocks are the S&P 500 Index; US bonds are the Bloomberg US Aggregate Bond Index; and private ABF is the MSCI North America Asset-Backed Lending Closed-End Fund Index. Risk is measured by the standard deviation of quarterly returns. Yield represents the weighted average yield of the portfolio's underlying investments based on the allocations shown. Past performance is not a guarantee of future results. An investment cannot be made directly into an index. The performance results shown are hypothetical and were achieved by means of the retroactive application of the statistical model. It may not be possible to replicate the hypothetical results.
The private nature of many ABF investments may create opportunities to earn what investors often describe as liquidity and complexity premiums. Because transactions are frequently negotiated directly and tailored to specific borrower needs, investors may receive additional compensation for providing capital in less liquid or more specialized markets. There can be no assurance, however, that these premiums will be realized.
Many ABF transactions also incorporate structural protections intended to help manage risk. These can include diversified collateral pools, over-collateralization, senior and subordinated tranches, and other contractual safeguards designed to protect investors under various market conditions.
While corporate credit performance is closely linked to company balance sheets and cash flows, many ABF investments are tied to pools of assets that generate contractual income. This can create different return drivers and risk characteristics.
Many ABF structures are secured by underlying collateral that’s isolated through bankruptcy-remote special purpose vehicles. In addition, cash flows often amortize throughout the life of the loan, meaning investors may receive both principal and interest payments over time rather than relying on a large repayment at maturity. Direct lending investments, by contrast, often follow a "bullet" repayment structure where principal is returned at the end of the loan term.
Historical data also suggests that private ABF has exhibited relatively low to moderate correlations with traditional bonds, stocks, and even direct lending. (See table below.) This can enhance portfolio diversification when combined with other asset classes.
The breadth of opportunity is also notable. Investors can access exposure to commercial real estate credit, collateralized loan obligations (CLOs), infrastructure debt, and consumer receivable finance.
Asset classes | Private ABF | Direct lending | US investment grade bonds | US high yield bonds | US stocks |
|---|---|---|---|---|---|
Private ABF | 1.00 |
|
|
|
|
Direct lending | 0.65 | 1.00 |
|
|
|
US investment grade bonds | 0.40 | 0.35 | 1.00 |
|
|
US high yield bonds | 0.59 | 0.66 | 0.81 | 1.00 |
|
US stocks | 0.66 | 0.66 | 0.61 | 0.82 | 1.00 |
Source: Invesco analysis, Burgiss, as of Dec. 30, 2025 (latest available) for private markets data. Data utilizes trailing 5-year quarterly return series from Dec. 31, 2020–Dec. 30, 2025. Past performance does not guarantee future results. An investment cannot be made directly in an index. Diversification does not guarantee a profit or eliminate the risk of loss. US stocks are represented by the S&P 500 index, US investment grade bonds by the Bloomberg US Aggregate Bond Index, US high yield bonds by the Bloomberg US Corporate High Yield Index, direct lending by the MSCI Global Senior Direct Lending Closed-End Fund Index, and private ABF by the MSCI North America Asset-Backed Lending Closed-End Fund Index. Correlation is the co-movement between the returns of two asset classes, ranging from -1 to 1, where -1 is an opposite relationship, and 1 is an identical relationship.
Another characteristic that’s often associated with certain ABF investments is the ability to incorporate inflation-linked features. Because many ABF transactions involve financing physical assets with contractual payment structures, terms can sometimes include periodic escalators tied to inflation measures.
For example, equipment finance arrangements may include annual payment increases that help preserve purchasing power over the life of the investment. By contrast, a traditional fixed-rate bond produces a constant coupon payment that may lose real value during periods of sustained inflation. While this feature isn’t universal across all forms of ABF, it highlights how the asset class can offer sources of income potential that differ from traditional fixed income investments.
Of course, ABF isn’t without risks. They include credit, liquidity, interest rate, prepayment, valuation, and collateral risks. Private market investments, like ABF, are generally less liquid than publicly traded securities and may require longer investment horizons. Performance will ultimately depend on the quality of the underlying assets, deal structures, and manager expertise.
Still, as financing needs continue to grow across sectors ranging from infrastructure and real estate to consumer finance and digital assets, ABF appears positioned to play an increasingly important role, in our view. For investors seeking broader exposure beyond traditional corporate credit, ABF may offer access to a diversified universe of income-generating assets backed by the real economy.
Important information
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Invesco and Barings have a partnership agreement, however Invesco is not affiliated with Barings.
All investing involves risk, including the risk of loss.
Past performance does not guarantee future results.
Investments cannot be made directly in an index.
A bankruptcy-remote special purpose vehicle is a separate legal entity created to hold assets and isolate them from the financial risks of the originating company. This structure is designed to help protect investors if the originating company experiences financial distress or bankruptcy.
Diversification does not guarantee a profit or eliminate the risk of loss.
Over-collateralization is a structural protection in which the value of the assets backing a loan or investment exceeds the amount owed, providing an additional cushion against potential losses.
Consumer receivable finance is a funding arrangement where a business uses the amounts owed by individual retail customers (consumers) on credit purchases or installment contracts as collateral or sells them to raise immediate working capital.
Standard deviation is a statistical measure of how much investment returns have varied over time. A higher standard deviation generally indicates greater volatility and a wider range of potential outcomes
Tranches are different layers of a financing structure that have varying levels of risk and repayment priority. Senior tranches are generally paid first and typically carry lower risk, while subordinated tranches are paid after senior tranches and generally carry higher risk and return potential.
The Bloomberg US Aggregate Bond Index is an unmanaged index considered representative of the US investment grade, fixed-rate bond market.
The Bloomberg US Corporate High Yield Bond Index measures the US dollar-denominated, high yield, fixed-rate corporate bond market.
The MSCI Global Senior Direct Lending Closed-End Fund Index tracks the performance of closed-end funds that invest in senior direct lending.
The MSCI North America Asset-Backed Lending Closed-End Fund Index tracks the performance of closed-end funds that invest in North American asset-backed lending
Investments in private credit and private debt — including leveraged loans, middle-market loans, mezzanine debt and second liens — are speculative and involve significant risks. These securities are generally illiquid, lack a secondary market, and may need to be held to maturity. Borrowers are often highly leveraged, increasing default risk, particularly in adverse economic or interest-rate environments. Private market investments also carry risks related to limited transparency, higher fees and expenses, longer investment horizons, and regulatory considerations, and may be redeemed at values that differ from the original investment amount.
Asset-based finance (ABF), public corporate credit, and private corporate credit differ in important ways. ABF investments are generally backed by pools of financial assets, while corporate credit investments are typically backed by the operations and cash flows of companies. Public corporate credit may offer greater liquidity and pricing transparency than private investments. Private ABF and private corporate credit investments generally involve different liquidity, valuation, information, and risk considerations. Comparisons are for educational purposes only and should not be viewed as a recommendation or indication of future performance.
Asset-based finance and asset-backed securities are subject to credit, liquidity, interest rate, and prepayment risk. Their value depends on the performance and cash flows of the underlying pool of assets and on the servicing of those assets; deterioration in collateral value, higher-than-expected defaults, or changes in prepayment speeds may reduce returns. Structural features such as tranching, over-collateralization, and the use of a bankruptcy-remote special purpose vehicle mitigate but do not eliminate the risk of loss.
Direct lending involves providing loans to private companies, often without the same level of transparency or regulatory oversight as public markets. Borrowers may experience financial distress or default on their obligations, leading to potential loss of principal and interest. Additionally, these loans are typically illiquid, making it difficult to exit positions quickly, especially during adverse market conditions.
Commercial real estate credit and commercial mortgage-backed securities are subject to the risks associated with real estate, including declines in property values, changes in interest rates, tenant or borrower defaults, and reduced liquidity. Loan-to-value cushions and other structural protections may not prevent losses, particularly in stressed markets.
Infrastructure credit is subject to risks including construction and operational risk, regulatory and political change, long asset lives, and sensitivity to economic and energy market conditions. These factors can affect the stability of the contractual cash flows and the value of the underlying assets.
Collateralized loan obligations and other structured credit securities are subject to credit, liquidity, and interest-rate risk, and to the risk that the underlying pool of loans performs poorly. Different tranches carry different levels of risk; junior and equity tranches are the first to absorb losses. A breach of the interest-coverage, collateral, or diversification tests may divert cash flows away from more junior tranches.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating. The values of junk bonds fluctuate more than those of high-quality bonds and can decline significantly over short time periods.
The opinions referenced above are those of the author as of September 17, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. The opinions are based on current market conditions and are subject to change. They may differ from those of other Invesco investment professionals.
Forward-looking statements are not guarantees of future results; they involve risks, uncertainties, and assumptions, and there can be no assurance that actual results will not differ materially from expectations. This information is provided for informational and/or educational purposes only and is not an offer to buy or sell, or a solicitation of an offer to buy or sell, any security or instrument.
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