Francesco Di Costanzo
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(13) Asset-Backed Finance Is Winning the Margin War in Private Credit

/15 min read

The $1 Trillion Bet Against the Old Playbook

Three numbers put the compositional shift in private credit in focus. Apollo reported $246 billion in asset-backed finance AUM at its Q4 2025 earnings. KKR completed a $6.5 billion dedicated ABF fund close in July 2025, its largest dedicated ABF fundraise to date. Ares now manages $46.7 billion in ABF strategies, up from a fraction of that figure five years ago. These are not marginal line items — they are the product of deliberate platform-level repositioning by the firms that between them manage well over a trillion dollars of private credit capital.

The clearest forward-looking measure of where this is heading comes from S&P Global Market Intelligence, which projects that among the five largest private credit managers, ABF AUM will reach approximately $1 trillion by Q3 2029, up from roughly $500 billion near Q3 2025. If total top-five credit AUM grows by approximately $1.3 trillion over the same period — as the S&P projections imply — ABF would account for roughly 40% of incremental growth by this arithmetic, dramatically disproportionate to its current 24% share of those platforms' combined portfolios. The thesis is not that ABF has already won. It is that at the platforms where the next $1–2 trillion of private credit will be managed, ABF is capturing most of the growth margin.

The case for precision matters here. Direct lending still commands 52% of global private credit AUM versus 17% for asset-based strategies as of September 30, 2025, on a base of roughly $2.7 trillion, according to Morgan Stanley Investment Management. In fundraising terms, direct lending raised approximately $91.4 billion globally in 2025 against specialty finance at approximately $45.7 billion, and With Intelligence puts direct lending's share of capital raised through Q3 2025 at 61.5%. Direct lending is not receding. The argument is about the composition of new growth, not the collapse of the existing stock — and those are meaningfully different claims.

Permanent Capital, Regulatory Arbitrage, and the Fintech Plumbing

Three structural engines are driving ABF's disproportionate growth, and they are interlocking rather than independent.

The first is permanent insurance capital. The annuity model generates long-duration, contractual liabilities that must be matched with long-duration, contractual cash flows. ABF — pools of consumer installment loans, auto receivables, trade finance assets — provides exactly the duration and predictability that fund structures cannot. Apollo's integration with Athene, which manages approximately $400 billion in assets, is the clearest expression of this logic. KKR has owned Global Atlantic outright since 2021. Blackstone formed BXCI in September 2023 and formalised a private credit partnership with Legal & General targeting up to $20 billion in July 2025. The insurance-manager nexus is not a clever capital structure trick — it is what makes ABF economics work at scale.

The second engine is bank capital relief via synthetic risk transfer. SRT issuance has grown approximately fivefold since 2016. The IMF estimates that over $1 trillion in assets have been synthetically securitised since 2016; the BIS confirms SRT protects loan portfolios of almost €800 billion as of end-2024. AFME data shows EUR 54.3 billion in European SRT issuance in Q2 2025 alone — up 114.6% from Q1 2025 and 77.5% from Q2 2024. Critically, the EBA's Spring 2025 Risk Assessment confirms that private credit funds are the largest buyer group, absorbing approximately one-third of distributed SRT tranches. Basel III / CRR3 is the regulatory mechanism behind this, but it is more selective than commonly framed: EBA data shows EU/EEA CET1 headroom of nearly 500 basis points above requirements as of Q2 2025, and the ECB's supervisory analysis found the average CRR3 impact in 2025 was "close to zero" for most banks. The real capital relief demand is concentrated among G-SII-tier institutions with large IRB-model loan books — not a system-wide retrenchment, but a targeted pressure from exactly the banks whose consumer and corporate books are largest.

The third engine is fintech origination infrastructure. The forward-flow agreement — a programmatic, committed purchase of newly originated loans from a fintech platform — has become the atomic unit of ABF scaling. Structured Credit Investor data from January 2026 confirms that over one-third of 2025 private ABF deals tracked in its database were forward-flow transactions. Blue Owl alone committed to purchasing over $13 billion of consumer and fintech-originated loans in 2025 across documented transactions, including a $5 billion agreement with SoFi in March, a $3.4 billion renewal with LendingClub in July, and a $2.4 billion deal with Pagaya Technologies in February, among others. Fortress purchased $1.2 billion of Upstart consumer loans in May 2025. According to trade data, Affirm placed a forward-flow agreement of up to $3 billion of BNPL loans with PGIM. Houlihan Lokey's specialty finance analysis estimates total private credit holdings of U.S. consumer debt at approximately $350 billion — a stock built almost entirely through this pipe structure. A 54% majority of investors in Preqin's 2025 survey identified asset-backed lending as the single most attractive emerging strategy in private credit, making these flow numbers a leading rather than lagging indicator.

The GFC Was a Mortgage Crisis, Not an ABF Crisis

The most persistent objection to ABF as a scaling strategy is the 2008 association: structured products, asymmetric information, complexity-masked risk. The association is understandable and largely wrong as applied to the asset classes now doing the scaling.

The GFC performance record for consumer and hard-asset ABS is substantially better than its reputation. TransUnion data shows auto loan delinquencies peaked at 1.64% in 2008–2009 before recovering sharply. Credit card ABS structural triggers — excess spread accounts, reserve funds, early amortisation provisions — largely held across vintages. Moody's analysis of default and loss rates in structured finance securities from 1993 to 2009 shows that 85% of 2009 structured finance impairments came from 2005–2007 RMBS and related vintages. CMBS was a different story: Fitch's loss severity data shows CMBS averaged 57% on resolved loans in 2009. The Federal Reserve's IFDP paper on ABS CDOs documents the mechanism by which asymmetric information and complex repackaging produced the catastrophic losses that defined the crisis in public memory. None of that mechanism applies to a senior-secured consumer auto pool or a trade finance receivable. The GFC tested real estate structured products to destruction; it was not a general ABF stress event, and treating it as one conflates two structurally different underwriting models.

Current stress signals deserve monitoring rather than dismissal. The IMF's US ABS Monitor from October 2025 reports subprime auto loan ABS delinquencies at 16% on a 30-plus-day basis in September 2025, against prime auto ABS at 1.9% — a spread that reflects the collateral-type specificity running through ABF performance in all environments. S&P Global's five-year cumulative default rate for AAA-rated structured finance from 1976 to 2024 is 3.45%, materially higher than AAA corporates over comparable horizons — a figure that aggregates across all AAA structured finance including pre-crisis RMBS-heavy cohorts, and therefore overstates the risk profile of prime consumer ABS sub-sectors, but remains a valid caution against blanket safety assumptions. The December 2025 prosecution of former Tricolor Auto executives by the DOJ for double-pledging collateral across multiple financing facilities illustrates the specific fraud tail risk that ABF underwriting must guard against and that has no direct analogue in corporate direct lending.

Building ABF Takes Years. Most Players Don't Have Them.

ABF underwriting is operationally distinct from corporate direct lending in ways that matter for competitive dynamics. Corporate lending requires periodic covenant monitoring, information rights, and sponsor relationships. ABF requires always-on data surveillance: static pool curves, vintage stratification, trigger dashboards, servicer oversight, and real-time collateral monitoring across potentially millions of individual obligors. Regulatory disclosure regimes have hard-coded this architecture into market practice — SEC Regulation AB II, in force since 2014, and the ECB and ESMA's converged loan-level data templates, finalised in October 2021, both mandate granular, systematic reporting that a firm cannot credibly participate in without purpose-built infrastructure.

Ares provides the most granular public evidence of what building this capability organically requires. According to Covenant Lite's February 2026 analysis, Ares grew its ABF team from approximately 40 professionals in 2020 to approximately 90 in 2025 — a period over which its ABF AUM increased roughly 12 times. The ratio of specialist headcount to AUM scale held approximately constant, meaning the monitoring work expands proportionally with the asset pool rather than compressing as the platform scales. This is why Apollo's 15-year head start — the firm began ABF immediately after the GFC in 2009 — and its ATLAS SP subsidiary with $55 billion in warehouse capacity represent infrastructure that took over a decade to assemble.

Acquisition compresses the timeline but does not eliminate the constraint. BlackRock's acquisition of HPS, completed in 2025, added approximately $32 billion in ABF AUM overnight. The deeper barrier is origination relationships, not analytical skill: a forward-flow agreement with SoFi or LendingClub reflects years of relationship-building, data-sharing, and structure negotiation that cannot be transferred through an M&A transaction. Acquiring a manager adds the book; it does not automatically transfer the pipeline or the proprietary servicing data that makes vintage stratification meaningful. The capability gap is both a moat for incumbents and a structural drag on how quickly the next tier of capital can deploy into ABF at institutional scale.

$95 Billion: The Federal Reserve Number That Complicates Everything

The dominant mental model of the private credit versus banking relationship is substitution: banks retreat, private credit advances, loans migrate off regulated balance sheets onto unregulated ones. Federal Reserve data published in FEDS Notes in May 2025 introduces a significant complication. Banks' committed credit lines to private credit vehicles grew from $8 billion in Q1 2013 to $95 billion in Q4 2024 — a 145% increase over the five years to Q4 2024. The Office of Financial Research Brief from March 2026 puts total bank committed exposure to private credit funds at $410 to $540 billion.

Banks are not retreating from private credit. They are restructuring their participation in it. The same institution that sells a pool of consumer receivables to an Apollo ABF vehicle may simultaneously be providing that vehicle with the credit line that funds deal closings while LP capital is called. The EBA's Spring 2025 Risk Assessment uses the phrase "circles of risk" to describe the specific concern: private credit funds buying SRT from the banks that also provide them with credit facilities, creating a loop in which risk appears distributed but remains correlated at the institutional level. Banks are being repositioned in the capital stack, taking fee income and committed-line exposure rather than credit risk and balance-sheet capital. Whether that configuration is safer than the one it replaces is a genuinely open question that neither the FSOC 2025 Annual Report nor the Bank of England's December 2025 system-wide exploratory scenario exercise has yet resolved.

It's a Growth-Engine Story, Not a Displacement Story

The important academic literature arrives at a different conclusion from the one suggested by ABF's momentum, and it deserves a direct engagement rather than a footnote. The CCMR's September 2025 private credit study finds no evidence that private credit borrowing replaces traditional bank loans in the corporate market. The UNC working paper from November 2024 finds that after a firm accesses private debt, bank lending to the same firm does not decline. Both studies examine corporate direct lending — a market where private credit fills the lower-middle market gap rather than competing head-on for the investment-grade book. Those findings are credible.

The distinction is categorical rather than contradictory. In corporate direct lending, the mechanism is complementarity — private lenders serve borrowers banks will not underwrite, at pricing banks cannot match. In ABF, the mechanism is genuine balance-sheet transfer: banks sell consumer loan pools, offload credit card receivables, and enter forward-flow agreements that permanently remove originated assets from their books. The CCMR and UNC findings do not apply to ABF because the transaction type is different. One is lending to a corporate borrower. The other is acquiring an asset. That categorical distinction matters for how systemic risk should be assessed and how any regulatory response should be designed.

The NAIC's Capital Adequacy Task Force is reviewing risk-based capital charges for insurance investments in ABF vehicles — a process that, if it results in higher charges, would narrow the cost-of-capital advantage underpinning the Apollo/KKR/Blackstone insurance model. The UK PRA's Basel 3.1 rules come into force January 1, 2027; the US Basel III timeline remains unresolved. The Bank of England's system-wide stress test of private markets focuses on corporate credit, leaving ABF-specific systemic risk unmapped at the regulatory level through at least early 2027. These are open process items, not hypothetical risks.

ABF is the dominant growth engine at the platforms where the industry's next phase will be written, through structural advantages that are durable but not universal. Direct lending retains majority AUM share and will continue to attract most capital from mid-market managers for whom ABF capability is not currently buildable at economic cost. What the next two years will test is whether the top-five platforms' incremental ABF bet holds up through the first full credit cycle in which private ABF pools have meaningful vintage depth. The infrastructure to run that test is in place. The data will follow.

Sources

Private Credit Market Structure and AUM

  1. Morgan Stanley Investment Management, "The Evolution of Direct Lending" https://www.morganstanley.com/im/publication/insights/articles/article_evolutionofdirectlending.pdf

  2. S&P Global Market Intelligence, "Unlocking the next stage of private credit's growth" https://www.spglobal.com/en/research-insights/special-reports/look-forward/partner-perspectives/unlocking-potential-ahead-with-vanguard/unlocking-the-next-stage-of-private-credit-growth

  3. S&P Global Market Intelligence, "Global private credit fundraising increased in 2025" https://www.spglobal.com/market-intelligence/en/news-insights/articles/2026/1/global-private-credit-fundraising-increased-in-2025-96448289

  4. With Intelligence, "Private Credit Trends in 2025" https://www.withintelligence.com/insights/private-credit-trends-in-2025/

  5. Preqin, "Direct lending set to spur private debt AUM to $2.8tn by 2028" https://www.preqin.com/news/direct-lending-set-to-spur-private-debt-aum-to-28tn-by-2028

  6. Alternative Credit Investor, "Europe grows share of private credit fundraising in 2025" https://alternativecreditinvestor.com/2025/12/16/europe-grows-share-of-private-credit-fundraising-in-2025/

  7. BIS Quarterly Review, "The global drivers of private credit" https://www.bis.org/publ/qtrpdf/r_qt2503b.htm

Insurance–Private Credit Integration

  1. Apollo Global Management, Q4 2025 Earnings Press Release https://www.apollo.com/insights-news/pressreleases/2026/02/apollo-reports-fourth-quarter-and-full-year-2025-results-3234359

  2. Apollo Global Management, "Apollo Announces Expansion of ATLAS SP Partners and ABF" https://ir.apollo.com/news-events/press-releases/detail/451/apollo-announces-expansion-of-atlas-sp-partners-and-abf

  3. Apollo Global Management, "Apollo's ATLAS SP Announces Investment from MassMutual" https://ir.apollo.com/news-events/press-releases/detail/494/apollos-atlas-sp-announces-investment-from-massmutual

  4. KKR, "Private Credit 2025 Outlook" https://www.kkr.com/insights/private-credit-outlook

  5. BusinessWire / KKR, "KKR Completes $6.5 Billion Asset-Based Finance Fundraise" https://www.businesswire.com/news/home/20250730601822/en/KKR-Completes-%246.5-Billion-Asset-Based-Finance-Fundraise

  6. Blackstone, "Blackstone Integrates Leading Credit and Insurance Businesses to Form BXCI" https://www.blackstone.com/news/press/blackstone-integrates-leading-credit-and-insurance-businesses-to-form-blackstone-credit-and-insurance-bxci-in-push-toward-next-1-trillion/

  7. Bloomberg, "Blackstone and Legal & General Strike Up to $20 Billion Private Credit Tie-Up" https://www.bloomberg.com/news/articles/2025-07-10/blackstone-l-g-strike-up-to-20-billion-private-credit-tie-up

  8. Barclays, "Barclays and Blackstone Credit & Insurance Agree to Sale of Credit Card Receivables" https://home.barclays/news/press-releases/2024/02/barclays-and-blackstone-credit---insurance-agree-to-sale-of-cred/

  9. Blackstone, "$1 Billion Infrastructure Loan Portfolio Purchase from Santander" https://www.blackstone.com/news/press/blackstone-credit-insurance-announces-1-billion-infrastructure-loan-portfolio-purchase-from-santander/

  10. Blackstone, "$1 Billion Forward Flow Origination Partnership with Harvest Commercial Capital" https://www.blackstone.com/news/press/blackstone-credit-insurance-announces-1-billion-forward-flow-origination-partnership-with-harvest-commercial-capital/

Synthetic Risk Transfer and Bank Capital

  1. BIS Quarterly Review, "The rise and risks of synthetic risk transfers" https://www.bis.org/publ/qtrpdf/r_qt2603c.htm

  2. IMF Working Paper, "Recycling Risk: Synthetic Risk Transfers" https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025200-source-pdf.pdf

  3. AFME, Q2 2025 Securitisation Data Report https://www.afme.eu/publications/data-research/afme-q2-2025-securitisation-report/

  4. Mayer Brown, "Synthetic Risk Transfer SRT in 2025" https://www.mayerbrown.com/en/insights/publications/2025/05/synthetic-risk-transfer-srt-in-2025

Banking Regulation (Basel III / CRR3)

  1. EBA, Spring 2025 Risk Assessment Report https://www.eba.europa.eu/sites/default/files/2025-06/93431cb8-4877-4325-82f9-0a41ba71e45a/Risk%20Assessment%20Report%20Spring%202025.pdf

  2. ECB Banking Supervision, Basel III Finalisation Speech (November 2025) https://www.bankingsupervision.europa.eu/press/speeches/date/2025/html/ssm.sp251119~e7c8d33158.en.html

  3. Bank of England / PRA, PS1/26 Basel 3.1 Final Rules https://www.bankofengland.co.uk/prudential-regulation/publication/2026/january/implementation-of-the-basel-3-1-final-rules-policy-statement

  4. Zanders, "Implications of CRR3 for the 2025 EU-Wide Stress Test" https://zandersgroup.com/en/insights/blog/implications-of-crr3-for-the-2025-eu-wide-stress-test

Forward-Flow Agreements and Fintech Origination

  1. Fortress Investment Group / Upstart, "$1.2B Forward-Flow Agreement" https://www.fortress.com/media/2025-05-06-upstart-and-fortress-investment-group-announce-12b-forward-flow-agreement

  2. Fortress Investment Group / SoFi, "$3.2B Expansion to Loan Platform Business" https://www.fortress.com/media/2025-04-17-sofi-secures-32-billion-expansion-to-loan-platform-business-across-agreements-with-fortress-and-edge-focus

  3. SoFi / Blue Owl Capital, "$5B Agreement" https://investors.sofi.com/news/news-details/2025/SoFi-Expands-Loan-Platform-Business-with-5-Billion-Agreement-with-Blue-Owl-Capital-Funds/default.aspx

  4. LendingClub / Blue Owl Capital, "$3.4B Forward Flow Renewal" https://ir.lendingclub.com/news/news-details/2025/LendingClub-and-Blue-Owl-Capital-Managed-Funds-Renew-Forward-Flow-Agreement-for-Up-to-3-4-Billion-of-Structured-Loan-Certificate-Transactions/default.aspx

  5. Bloomberg, "Blue Owl Inks $2.4 Billion Deal for Pagaya Consumer Loans" https://www.bloomberg.com/news/articles/2025-02-06/blue-owl-inks-2-4-billion-deal-for-pagaya-consumer-loans

  6. Structured Credit Investor, "Fintech platforms riding wave of ABF partnerships" https://www.structuredcreditinvestor.com/news-analysis/asset-backed-finance/84531/fintech-platforms-riding-wave-of-abf-partnerships

  7. Apollo Global Management, "Origination: The $40 Trillion Engine of Private Credit" https://www.apollo.com/wealth/insights-news/insights/the-view-from-apollo/2025/10/origination-the-usd-40-trillion-engine-of-private-credit

Capability Building and Platform Development

  1. Covenant Lite, "How Ares Built an ABF Platform the Slow Way" https://covenantlite.substack.com/p/how-ares-built-an-abf-platform-the

  2. Covenant Lite, "The Barbarians of KKR" https://covenantlite.substack.com/p/covenant-lite-43-the-barbarians-of

  3. HPS Investment Partners, Asset-Based Finance Platform https://www.hpspartners.com/our-solutions/asset-based-financing

  4. ESMA, Securitisation Framework https://www.esma.europa.eu/esmas-activities/markets-and-infrastructure/securitisation

  5. U.S. SEC / Federal Register, Asset-Backed Securities Disclosure and Registration (Regulation AB II) https://www.federalregister.gov/documents/2014/09/24/2014-21375/asset-backed-securities-disclosure-and-registration

  6. European Central Bank, "Changes to the Eurosystem's Loan-Level Data Requirements" https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210628~ab8aa2e3e1.it.html

  7. Dechert, "2025 Trends in Private Credit Fund Structuring" https://interactive.dechert.com/2025-trends-in-private-credit-fund-structuring

Bank–Private Credit Co-Dependency and Systemic Risk

  1. Federal Reserve FEDS Notes, "Bank Lending to Private Credit: Size, Characteristics, and Financial Stability Implications" https://www.federalreserve.gov/econres/notes/feds-notes/bank-lending-to-private-credit-size-characteristics-and-financial-stability-implications-20250523.html

  2. Office of Financial Research, "Measuring Counterparty Exposures to Private Credit" https://www.financialresearch.gov/briefs/files/OFRBrief-26-02-measuring-counterparty-exposures-private-credit.pdf

  3. FSOC, 2025 Annual Report https://home.treasury.gov/system/files/261/FSOC2025AnnualReport.pdf

  4. Bank of England, "System-Wide Exploratory Scenario Exercise Focused on Private Markets" https://www.bankofengland.co.uk/news/2025/december/boe-launches-system-wide-exploratory-scenario-exercise-focused-on-private-markets

  5. AFME, Q3 2025 Securitisation Data Report https://www.afme.eu/publications/data-research/afme-q3-2025-securitisation-report/

GFC Performance and Historical ABS Data

  1. TransUnion, "Financial Crisis: 10 Years Later — Consumer Credit Market on an Upward Curve" https://newsroom.transunion.com/financial-crisis--10-years-later-consumer-credit-market-on-an-upward-curve/

  2. Moody's / FCIC, "Default and Loss Rates of Structured Finance Securities 1993–2009" http://fcic.law.stanford.edu/documents/view/1372

  3. Federal Reserve IFDP, "Asymmetric Information and the Death of ABS CDOs" https://www.federalreserve.gov/pubs/ifdp/2013/1075/ifdp1075.htm

  4. IMF, "US Asset-Backed Securities Monitor" (October 2025) https://www.imfconnect.org/content/dam/imf/News%20and%20Generic%20Content/GMM/Special%20Features/GMM%20US%20ABS%20Monitor%20October%202025%20.pdf

ABF Risk and Legal Structure

  1. U.S. Department of Justice, "CEO, CFO, COO Charged in Connection with Billion-Dollar Collapse of Tricolor Auto" https://www.justice.gov/usao-sdny/pr/ceo-cfo-coo-charged-connection-billion-dollar-collapse-tricolor-auto

  2. Covington & Burling, "Bankruptcy-Remote Structures Tested in First Brands Group Cases" https://www.cov.com/en/news-and-insights/insights/2026/01/bankruptcy-remote-structures-tested-in-first-brands-group-cases

Academic Research: Complementarity vs. Displacement

  1. CCMR, "Private Credit Study" (September 2025) https://capmktsreg.org/wp-content/uploads/2025/09/CCMR-Private-Credit-Study-2025.pdf

  2. UNC Working Paper, "Private Debt versus Bank Debt in Corporate Borrowing" (November 2024) https://jhfinance.web.unc.edu/wp-content/uploads/sites/12369/2025/01/PrivateCreditPaper_HMS_Nov2024.pdf

Regulatory Risk to the ABF Thesis

  1. NAIC, Capital Adequacy Task Force https://content.naic.org/capital_adequacy_task_force.htm

  2. Mayer Brown, "US NAIC Fall 2025 National Meeting Highlights: Investment-Related Highlights" https://www.mayerbrown.com/en/insights/publications/2026/01/us-naic-fall-2025-national-meeting-highlights-investment-related-highlights

  3. Dechert, "2025 Trends in Private Credit Fund Structuring" https://interactive.dechert.com/2025-trends-in-private-credit-fund-structuring