PRIVATE CREDIT’S NEXT EVOLUTION: THE EXPANDING ROLE OF ASSET-BACKED FINANCE

By Ben Trombley, Managing Director, Credit Solutions, Apollo

Private credit has taken on a larger role in financing economic growth, and as the market has evolved, the opportunity set available to borrowers and investors has broadened meaningfully. Historically, many investors have viewed private credit primarily through the lens of corporate direct lending (“DL”). Today, asset-backed finance (“ABF”) is becoming an increasingly important part of the private credit landscape.

ABF refers to lending supported by the contractual cash flows of a defined pool of assets, and by the value of those assets themselves. This differs from traditional corporate credit, where repayment generally depends on the operating performance and enterprise value of the borrowing company. For investors, the distinction matters: ABF is typically underwritten to asset-level cash flows, collateral quality, structural protections and performance triggers, rather than solely to the financial profile of a corporate borrower.

The financing ecosystem has changed significantly since the Global Financial Crisis. Banks remain essential providers of credit, but regulatory, capital and balance-sheet constraints have reduced their appetite for more niche types of financing and for longer duration lending. At the same time, companies, originators and asset owners increasingly seek more flexible and bespoke financing solutions, which has created room for private lenders to finance parts of the real economy that may be less efficiently served by traditional channels.

This breadth is one of ABF's defining features. Apollo views the asset-backed market across six key pillars: Financial Assets, Consumer Finance, Commercial Mortgage, Residential Mortgage, Capital Solutions and Hard Assets. Taking a step further, this market can include financing linked to homes and commercial properties, aircraft and auto, infrastructure and equipment, and other assets associated with the real economy. Although these examples are diverse, the common thread is that repayment is linked to identifiable cash-flow streams and underlying collateral value. Within and across these areas, exposures may have different collateral types, repayment patterns, geographies, durations and sensitivities to the economic cycle. 

ABF also allows investors to access a broader range of risk profiles. Depending on the asset class and structure, investors may focus on senior investment-grade or investment-grade-like exposures, sub-investment-grade tranches, or residual positions with varying risk-and-return characteristics. In higher-quality segments, ABF may also serve as a complement to traditional public fixed income by offering the potential for higher yields for a comparable level of credit risk, though with different liquidity, complexity, and structural considerations. This flexibility benefits portfolio construction, as certain ABF strategies may be designed for investors seeking higher-quality income, while others may emphasize higher return potential lower in the capital structure.

For this reason, structure is central to asset-backed financing. Many ABF transactions use bankruptcy-remote vehicles, cash-flow waterfalls, amortization, overcollateralization, performance triggers and other protections intended to align repayment with the underlying assets, and these cash flows are often amortizing or self-liquidating, reducing principal at risk over time. These nuances can change the nature of the risk investors are taking and allow for more bespoke forms compared to traditional financing.

Because ABF spans a wide range of markets and structures, each opportunity requires experienced evaluation. Some areas are standardized and publicly traded, while others are privately negotiated financings backed by specific pools of assets from specialty originators. These private transactions often require lenders to understand who originated the assets, what collateral supports the financing, how the legal structure works and how the cash flows may perform in different market environments. Because these opportunities can require deep sourcing, underwriting and structuring expertise, they may offer a spread premium relative to more standardized forms of credit. In this way, investors may be compensated for complexity and sourcing, rather than taking on only traditional corporate credit risk. 

Overall, ABF represents a broad and evolving segment of private credit, spanning a diverse range of collateral types, risk profiles, repayment mechanisms and structures. For investors, the key is understanding the underlying assets, cash flows, structural protections and manager capabilities that support each opportunity. As private credit markets continue to expand, ABF can play an increasingly important role in helping investors access diversified sources of contractual income, structural downside protection and differentiated return potential.

About Apollo Global Management, Inc.

Apollo is a high-growth, global alternative asset manager. In our asset management business, we seek to provide our clients excess return at every point along the risk-reward spectrum from investment grade credit to private equity. For more than three decades, our investing expertise across our fully integrated platform has served the financial return needs of our clients and provided businesses with innovative capital solutions for growth. Through Athene, our retirement services business, we specialize in helping clients achieve financial security by providing a suite of retirement savings products and acting as a solutions provider to institutions. Our patient, creative and knowledgeable approach to investing aligns our clients, businesses we invest in, our employees and the communities we impact, to expand opportunity and achieve positive outcomes. As of March 31, 2026, Apollo had approximately $1.03 trillion of assets under management. To learn more, please visit www.apollo.com.

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