What is asset-based finance?

The lender is repaid from the contractual payments on the pool, such as the instalments on consumer loans or the rent on aircraft leases, and many such loans pay down principal as they go rather than at maturity. Direct lending, by contrast, depends on a single company’s cash flow. Definitions vary: it is also called asset-backed or specialty finance, and managers draw its edges differently, for example whether home mortgages or loans to funds count.

Say a fund lends $100 million against a pool of 10,000 equipment leases. The lessees’ monthly payments repay the loan, so the fund’s return depends on how many of them keep paying. Simple example. Terms vary by fund.

Its risk rests on the assets and how the deal is structured rather than on a single company, so investors treat it as a different exposure from direct lending.

• Mount Logan Expands Interval Fund Platform with Proposed AFA Asset Based Lending Fund Transaction
  Mount Logan ManagementDealsABF JournalOct 26