The $5tn (£4tn) asset-backed finance (ABF) market presents an important alternative for different lenders after industrial banks scaled again their actions within the house, in line with Oaktree.

Within the newest month-to-month round-up from the choice asset supervisor, co-chief executives Robert O’Leary and Armen Panossian famous that “ABF has been reworked from a low-return, bank-dominated asset class right into a extremely engaging space of alternative for different lenders”.

Tighter rules, increased rates of interest, quantitative tightening and threat aversion have led industrial banks to retrench from asset financing, they mentioned.

Learn extra: Non-public debt diversifies from direct lending

ABF contains lending in opposition to, or investing in, swimming pools of contractual belongings, equivalent to tools leases, shopper loans, residential mortgages, and royalty agreements.

Traders are interested in the variety of the underlying collateral out there out there, which reduces idiosyncratic threat.

Oaktree additionally highlighted that ABF belongings are contractual cost obligations with predictable cashflows, so traders are sometimes capable of recoup a piece of their capital throughout the anticipated timeframe.

Learn extra: Non-public debt AUM handed $1.6trn final yr amid “explosive” progress

Moreover, ABF sometimes presents “significant structural protections”, Oaktree mentioned.

If the worth of the belongings decline considerably, cashflows are normally redirected to repay probably the most senior lenders, and compelled asset gross sales or contentious negotiated restructurings are sometimes averted.

Oaktree mentioned it believes that the prime drivers of ABL’s transformation into a chance for different lenders – specifically elevated rules and the tip of the zero-interest-rate period – are secular shifts, not short-term traits.

“Thus, we imagine ABF isn’t a short-term alternative, however reasonably the following frontier of personal credit score,” it mentioned.

Learn extra: Moody’s: Non-public credit score returns might fall this yr