Many today are banging the drum that there is more to private credit than sponsor-backed direct lending and that there is a wider world of asset-based finance to consider.

It was why it was perhaps appropriate that DealCalayst’s third annual US Asset Based Finance Conference in New York described asset-based finance as “the emerging frontier of private credit.”

So what are on the minds of those working in this growing market? 9fin went to the conference to find out.

Aviation finance taking off

Among the growing areas of ABL is aviation finance, and it’s only set to increase. Earlier this year, Carlyle announced a $400m deal backed by commercial aircrafts.

A big reason why it is good to invest in the space, according to Marathon’s CEO Bruce Richards, is the stable and predictable cash flows. Airlines, for instance, often have long-term contracts with municipalities and states to provide services, providing stable revenue streams.

A segment of the aviation market includes scooper planes, which have become increasingly in demand due to the increasing number of wildfires across the country making them an attractive area for private credit firms to invest.

“These aircrafts are great for our environment to be financing these types of transactions that you know, for obvious reasons, save the people's lives, their homes, and address the pollution,” Richards said during a panel appearance. “We love financing that transaction,” he added, referencing a recent scooper plane deal Marathon did.

In the case that an aviation investment does go awry, lenders have the ability to seize assets via regulation from the Cape Town court, which allows aircraft lessors to quickly seize planes if lease payments are not made.

Moreover, there’s incredible growth potential within the sector, as the backlog of new aircraft orders extend to nearly a decade and demand for travel continues to grow post-COVID.

Music royalties sounding like a hit

Streaming services such as Spotify have disrupted the way we listen to music and subsequently revolutionized the way it is financed.

As the new iteration of the market matures, asset investors are finding that predictable cash flows means music royalty investing is a tune they can dance to.

The proliferation of streaming services have made each artist a self-contained recurring revenue “SaaS” like business, according to Brian Richards, managing partner at Artisan, an investment bank focused on the media space.

These recurring streams of revenue started catching the eyes of asset managers a few years ago as many copyright owners found buyers of assets for their catalogues, which can trade at anywhere between 10x-15x ratio on the cash flows they generate. So-called ‘trophy’ catalogues can go for over 20x in some cases.

Panelists stated that there are 50-100 deals in market at any given time today. Once investors acquire the rights to these catalogues, copyright law means that they’ll be able to enjoy the asset for decades — protection extends to as long as 70 years after the death of the author.

Investors at the conference have stated that the shift to streaming has made underwriting these investments much easier due to the abundance of data on streaming trends that music platforms offer today, though modeling out the longevity of revenue is a little trickier.

Jeremy Tucker, co-founder of Raven Capital Management, said that these advancements allow him to feel confident projecting revenue over at least the next five to 10 years, but that no promises can be made for a time horizon like 30 years.

For more adventurous investors, an alternative strategy would be to look into specific upcoming artists you think will breakout, and purchasing their catalogues before prices rise with their stardom.

Good luck to any investors attempting to find the next Taylor Swift.

Litigation finance on the rise

Litigation finance is another growing asset-based finace strategy that lenders are heading into as 9fin covered recently in a video interview with Boris Ziser, partner at Schulte Roth & Zabel.

The market is evolving and becoming increasingly sophisticated, but selecting the right assets to finance is critical and there are numerous factors to consider panelists said, such as the merits of the underlying case, but also the law firm working on the issue.

“A lawsuit with one firm, which may be best in class, versus the same case with a different law firm, can be valued totally differently,” said James Bedell, director at Yieldstreet, at the conference.

Mass torts have seen the most capital deployment in the litigation finance space, and are one of the most popular case types. Then there are also class-action lawsuits, or single-event breach of contract cases, or even personal injury.

Litigation finance is often about financing a portfolio of lawsuits, rather than betting on an individual case. Therefore a key attraction is that you don’t have to have a 100% success rate, as positive outcomes on a few cases could easily cover losses on other cases in a portfolio of 10 for example, panelists said.

While these financings are appealing for lenders, who view it as an asset class with uncorrelated returns, the main risk they highlighted was duration risk — lawsuits can infamously drag on longer than expected.

Unlike other asset classes, no cash is generated throughout the investment period, so panelists said that understanding and pricing in duration risk was key to avoiding pitfalls in the niche space.

Insurance synergies

For years following the GFC and especially since Apollo’s merger with Athene in 2022, private credit and insurance companies have been joined at the hip.

We’ve covered a few ways the two have gotten more involved with products like NAV loans and life settlements, but panelists at the conference underscored just how intertwined the entities are becoming, especially when it comes to asset-based financing.

Insurance companies love investment grade-rated products and are always on the hunt for alpha. It can be hard to find decent returns in the current market, but can success can sometimes be found in asset-based securities or loans.

“A lot of annuity carriers raised looking for mostly IG grade paper, but it’s hard to originate that much IG at an excess spread, so they try to find ways to do it in private markets for even 50bps,” Scott Rosen, a partner at Ares said during a panel appearance.

What’s made private asset-based financings even more attractive is their increasing ability to get rated, Michael Levin from Apollo noted during his panel, adding that the “list of things that can be securitized has tripled in recent years. Anything can be rated now. Ratings agencies are far more flexible than they were.”

Digital infrastructure opportunities

One of the ways private credit is tapping into the wave of AI-excitement is through the rapidly growing digital infrastructure market. Lenders primarily get involved by financing data centers, which are critical to cloud networks and AI development.

For instance, Blackstone just announced last week that they’re investing $13bn into data centers, and demand projections suggest that there’s plenty more where that came from.

Xavier Dailly, managing director at TPG Angelo Gordon, stated that the market size for lenders is about $25bn today, while it was basically zero in 2016. Historically, digital infrastructure mostly referred to cell towers, and large corporations mostly funded these infrastructure investments off their own balance sheet.

That changed when cloud computing went mainstream, which led developers to turn to private financings to accelerate their ability to build new locations. That push has only picked up momentum in light of the AI hype, with panelists citing projections for the market size to double by 2027.

So the opportunity set is growing, but that doesn’t mean they’ll be easy for everyone to access. Robert Gutman, senior vice president at Compass Datacenters, said that there are high barriers to entry in the space, for both builders and lenders.

Because these aren’t just warehouses, but are rather more like large air conditioners that cool racks of servers, there is little margin for error since even brief outages are not considered acceptable in the industry.

To register DealCatalyst's 2025 asset based finance conference click here. Also, if you want to check out some of the video interviews we did ahead of this year's event click here.