The Missing Piece: Why Asset Based Finance Belongs in Wealth Management Portfolios
Asset based finance (ABF) should be particularly attractive to the private wealth management channel due to its unique combination of diversification, resilience, income potential and protection against economic volatility. As traditional bank lending has contracted, asset based finance has filled a vital gap in global credit markets, presenting private wealth managers with a timely and compelling opportunity.
Diversification and Portfolio Optimisation
Asset based finance enables investors to access an array of exposures spanning corporate and consumer receivables, to specialty finance and fintech lending. By investing in pools of assets rather than single corporate debtors, asset based finance introduces considerable diversification benefits to private wealth portfolios. Such asset pools may include hundreds or thousands of underlying borrowers with diversified cash flows, reducing concentration risk and lessening correlation with both public equities and traditional corporate credit markets. This attribute may help to lower portfolio volatility and create stable highly predictable cash flows, crucial objectives for private clients seeking to preserve and grow wealth over successive generations.
Modern portfolio theory, combined with deeper analytics on a maturing and robust data set, indicates that including less correlated asset classes, such as asset based finance, can shift the efficient frontier, enabling investors to achieve higher expected returns with less risk than a purely traditional allocation. By supplementing a conventional investment grade fixed income portfolio with asset based finance, portfolios may experience improved risk-adjusted returns, often with minimal increase in annual stressed losses.
Attractive Risk-Adjusted Returns
The resilience of asset based finance’s return profile has become increasingly apparent in recent years. The asset class often delivers higher risk-adjusted returns than direct corporate lending, partly due to the collateral backing of investments and the premium associated with their complexity and illiquidity. Private asset based finance portfolios have historically exhibited lower volatility and are less procyclical compared to leveraged direct lending or public equities (see graph below). During economic stress scenarios, portfolios anchored in asset based finance have shown an ability to limit drawdowns, largely because they are secured by tangible assets and usually structured with amortising cash flows.
Further, asset based finance’s income profile is supported by its regular stream of payments, derived from the underlying asset pool, creating a stable, consistent cash flow (income generation) for investors. This is particularly valued in private wealth management where predictability and capital preservation are paramount.
Exhibit 1. Breadth of Strategies Provides Tailored, Attractive Risk-Adjusted Returns (Cambridge Associates LLC, May 2024)
Resilience in Dynamic Market Environments
Asset based finance’s embedded resilience stems from its backing by real assets and the structural protections inherent in its typical investments. In periods of economic weakness or rising market volatility, real-world collateral facilitates greater recovery prospects should borrowers default, helping to preserve portfolio value. Moreover, many asset based finance loans are floating rate, offering a degree of principal protection during inflationary environments.
The recent retrenchment of banks from certain credit markets, due to tighter regulations, has provided further growth opportunities for nonbank lenders in asset based finance. This market dynamic has broadened access for private wealth managers to deals in corporate receivables and specialty finance that previously resided almost exclusively with institutions.
Role within Private Wealth Management
For high net worth and ultra-high net worth clients, the private wealth management channel must balance the imperatives of growth, capital preservation, income generation and generational wealth transfer. asset based finance’s robust risk mitigation, reliable cash flow, and capacity to enhance total return without unduly stretching risk parameters may make it an optimal fit. The flexibility to customise exposure, whether by sector, duration, or asset type, also allows portfolio construction to reflect an individual’s risk tolerance, investment horizon or specific liquidity needs.
Private wealth management investors and advisers are also increasingly drawn to the investment structures available here, such as open-ended evergreen fund structures, listings and ISIN numbers for selected products in the wealth channel.
Conclusion
In a climate marked by geopolitical instability, asset-based finance stands out as a vital tool for private wealth managers. Its advantages lie in its ability to diversify portfolios, deliver attractive and resilient risk-adjusted returns, generate steady income and mitigate drawdowns during times of stress. The structural strengths and favourable market dynamics of asset based finance should make it a mainstay of sophisticated private client investment strategies for the foreseeable future.
About Channel
Channel is a leading global alternative asset manager with deep industry expertise that deploys private capital across asset-based lending solutions to the innovation economy and specialty finance sectors. Since 2007, our investing expertise has served the financial return needs of our clients and provided businesses with innovative debt capital solutions for growth. As of September 30, 2025, Channel had approximately $26 billion in cumulative capital invested and facilitated financing in over 35 countries. For more information, please visit www.channelcapital.io.
