Private fund managers like Apollo, Ares, Blackstone, and KKR have significantly shaped corporate finance over the last decade and are now setting their sights on a lucrative target: the U.S. consumer. These firms are diving into asset-based finance, encompassing a wide array of debt from auto loans and credit cards to real estate mortgages and loans secured by assets like fiber-optic networks. This move into asset-based finance could dramatically increase their reach within the U.S. economy, potentially generating substantial profits for shareholders.
Following the 2008 financial crisis, private-equity firms started to take over the role of banks as the primary providers of corporate loans and have gradually moved into asset-based finance in recent years. While banks still account for the majority of this debt, their involvement has been diminishing.
Private funds have accumulated substantial capital intended for investment in private debt, including a significant amount of “dry powder” – unallocated funds ready for deployment. For instance, Blackstone reported last quarter that it had $197.3 billion in total dry powder awaiting investment opportunities. To activate this capital, fund managers are creating specialized teams to generate and distribute asset-based finance products to investors. For instance, KKR and Sixth Street Partners have made notable hires from the banking sector to lead their asset-based finance initiatives, signifying the strategic importance of these assets.
Asset-based finance not only provides a new avenue for growth for these private funds but also offers products that appeal to large institutional investors, such as insurers and pension funds, through investment-grade rated instruments.
The market has seen a surge in transactions:
- In December, KKR acquired $7.2 billion in recreational vehicle loans from BMO and had previously agreed in June to buy up to $44 billion worth of existing and future buy-now-pay-later loans from PayPal.
- Apollo, renaming the Credit Suisse division it acquired as Atlas, has issued numerous “warehouse” credit lines to firms with assets ranging from freight ships to solar power projects. These companies then lend this capital to their customers, with the loans eventually being packaged and sold to private credit entities or asset-backed bond investors.
- In October, Sixth Street, Pacific Investment Management, and KKR took over Goldman Sachs’s GreenSky, a consumer lending unit, acquiring $8 billion in loans.
- Blackstone followed by purchasing $1.1 billion in credit card debt from Barclays’s U.S. operation last month.
- Before PacWest was sold, Ares Management secured a $3.5 billion collection of specialty loans from it last summer. Moreover, in December, Blackstone and the Canada Pension Plan Investment Board acquired $17 billion in mortgages from the dissolution of Signature Bank
The push into asset-based finance by private funds is part of a larger trend that could see these firms capturing a significant portion of the market, which is estimated to be worth between $25 trillion to $40 trillion. This development could concentrate a larger share of lending among a few large asset managers, potentially increasing their influence within the U.S. economy.
This strategic pivot towards asset-based finance opens up new investment opportunities, signaling an attractive proposition for those looking to diversify their portfolios with innovative financial products. As private funds extend their footprint in the U.S. consumer finance sector, investors are presented with a unique chance to partake in a growth trajectory that could redefine the lending landscape. The anticipated expansion in the asset-based finance market, coupled with the expertise and innovative strategies of firms like Apollo, Ares, Blackstone, and KKR, offers a compelling investment narrative. For investors keen on navigating the evolving financial services industry, this shift not only represents a chance to invest in a sector with burgeoning potential but also to align with the leading forces reshaping how consumer finance operates in a post-bank era.
To explore how you can leverage these opportunities within your investment portfolio, we invite you to get in touch with us to learn more about the private products we offer to our clients, tailored to meet the demands of this dynamic market.
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Disclaimer:
This document is for informational purposes only and does not constitute financial, legal, or investment advice, nor does it constitute an offer or solicitation to buy or sell any investment instruments. The information contained herein has been obtained from sources believed to be reliable but is not guaranteed for accuracy or completeness. The views expressed are those of the authors and do not necessarily reflect the opinions of any institutions or individuals mentioned within.
Investing in private equity and asset-based finance involves a high degree of risk, including the potential loss of principal. Such investments are suitable only for sophisticated investors who are capable of bearing such risks. The performance of investments mentioned herein can be volatile and is not indicative of future results. Potential investors should consider their investment objectives and risks carefully before investing.
The mention of specific companies, such as Apollo Global Management, Ares, Blackstone, and KKR, is for illustrative purposes only and is not an endorsement or recommendation of their services or investment strategies. Investments in asset-based finance are subject to market, credit, interest rate, liquidity, and management risks, among others. Economic and market conditions can affect the performance of these investments, and there is no guarantee that they will achieve their investment objectives.
Investors are advised to consult with their financial, legal, and tax advisors prior to making any investment decisions. The information in this document is subject to change without notice, and we are not responsible for any errors or omissions or for the results obtained from the use of this information.
This document may contain forward-looking statements that are based on current expectations, estimates, and projections about the financial industry, and involve inherent risks and uncertainties. Actual results could differ materially from those anticipated in these statements.
By proceeding further, you acknowledge and agree that you understand these warnings and that you are responsible for performing your own due diligence before making any investment decisions.
