Asset-backed finance is entering a significant new phase. Capital is flowing into the market, new asset classes are coming into play, and issuers and investors have more flexibility in how they structure transactions.
With that growth comes a more complex operating environment. The infrastructure supporting the market will have to evolve alongside it.
That was a recurring theme in a recent Concord asset-backed finance discussion in New York, where investors and industry leaders considered what comes next for the market.
ABF has come a long way, but the market remains in the early stages of a much broader opportunity. When asked what would most accelerate ABF activity over the next 12 months, 46% of attendees pointed to better originator relationships and deal flow. The challenge is connecting available capital with the right opportunities.
James Vergara, CIO of Arlington Financial Consultants, sees the potential on a much larger scale, calling a $20 trillion ABF market over the next five to 10 years “very doable.” Kyle Asher of Monroe Capital offered another way to frame the market’s position:
“It’s nascent. It’s what corporate direct lending was maybe six or seven years ago. Things move faster today, but it’s such a big market that, if I’m going to use a baseball analogy, I’d say the bottom of the second inning. So, a lot to do.”
The market is still opening up. New sources of capital are entering, more originators are finding ways to finance assets, and investors are becoming more comfortable with structures beyond traditional ABS.
More capital is finding its way into a wider range of assets. When attendees were asked which asset classes they expect to see the most activity over the next 12 to 18 months, the responses reflected just how broad the opportunity set has become:
That breadth also means more transactions are moving beyond standardized structures and familiar collateral. Joe Lau, President of Lord Capital, described the shift this way:
“The real definition around the market is being able to do more bespoke structures, finding ways to access collateral that may not be ready for the term ABS market or structures that give more flexibility to an issuer to be able to grow their book and manage their portfolio.”
For George Diaconu, Founder and CEO of Alternatives Portfolio Solutions, the operational demands become even more apparent in esoteric ABF. When a transaction lacks a standard blueprint or the available data isn't structured, the servicing approach must adapt to the asset.
“Your servicer has to be someone who is able to go to first principles, can deal with not having data available in a very structured format, and is really able to come up from scratch with solutions that allow you to monitor the specific structures that you're putting today.”
The opportunity is expanding, but so is the range of variables participants have to manage. When assets and structures become harder to standardize, the ability to understand and monitor them becomes increasingly important.
For investors, downside protection remains central to the ABF opportunity. Downside protection and collateral backing ranked as the biggest driver of greater institutional allocation to ABF, with 58% of attendees selecting it.
Dhruv Vakharia, CEO of Concord, tied durable yield directly to downside protection:
“You can't have durable yield unless you've got that downside protection, especially in this environment.”
Investors need a clear view of the collateral, reliable information to support it, and visibility into how the asset performs. Meeting those needs gets harder when transactions involve bespoke structures, less standardized data, or assets that require a different approach to oversight.
Nicole Byrns, Partner at Dumar Capital Partners, made the case that operational risk deserves the same level of attention as market and credit risk:
“If you have a credit risk management team and if you have a market risk management team, why do you not have an operational risk management team?”
The same principle extends to the records supporting an asset, particularly as portfolios move between parties and systems.
Operational risk shows up in the work required to support a transaction after closing: diligence, audits, reconciliation, reporting, and ongoing oversight. Those processes give investors the visibility to understand what they own and catch problems before they become losses.
Capital is flowing into the market, new asset classes are emerging, and structures are becoming more sophisticated. But the infrastructure supporting those transactions has to keep pace.
Data transparency and reporting emerged as the biggest operational challenge, with 32% of attendees pointing to it as their top concern.
Peggy Choi, Founder of Craftt, offered a blunt assessment of the market's current operating model:
“We're scaling a multi-billion dollar, multi-trillion-dollar asset class on spreadsheets, sent by email weekly from borrowers to lenders.”
That approach becomes harder to sustain as transactions involve more participants, more complex structures, and more data. Originators, servicers, lenders, investors, and other stakeholders all need reliable information to understand the assets and make decisions around them.
Dhruv Vakharia described the resulting friction:
“Every party in an ABF deal is operating off their own unique source of truth... reconciling all that stuff is an immense pain in the neck. It's highly inefficient, definitely not scalable.”
The opportunity is there. Realizing it at scale will depend in part on whether the systems supporting data, verification, reporting, and servicing can keep pace. ABF's next phase will require infrastructure that can grow alongside the market.
The conversation in New York made one thing clear: ABF has plenty of room to grow, but the market's infrastructure will have to evolve with it.
Watch the two-minute recap below for highlights from the discussion and perspectives from attendees.
Peter Moody, Chief Revenue Officer at Concord, works with specialty finance organizations on the operational and strategic considerations involved in building and scaling their businesses. He brings a practical perspective on how servicing and technology can support growth and evolving business needs.
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