Asset-Based Finance: Investing in Consumers

19 December 2024
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Vlog AB Carval 12-24
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    Neil Hepworth| Principal—AB CarVal
    P.J. Collins| Managing Director—AB CarVal
    Angie Fenske| Principal - AB Carval
    David Johnston| Principal - AB Carval
    Transcript

    Neil Hepworth: Asset-based finance is a $6 trillion market today. It’s probably going to grow to about $10 trillion by 2028.  You’re originating assets to the average person in the street—mom and pop investors—be they consumer loans, residential loans. So it’s very granular, very diversified. And its loss-adjusted yields are very, very stable.

    P.J. Collins:
    There are valid question marks around what is going to happen with the consumer in today’s environment. But as you dig into it, the Fed is now lowering interest rates; that’s going to have a meaningful effect on consumers, especially ones that have two or more forms of debt that are floating.

    The unemployment picture isn’t as bad as it seems, historically speaking.

    And the delinquency rates…they’re driven by lax underwriting that was done in… late ’21, and ’22 and early ’23. That’s been tightening.

    So we’re finding ourselves now in a spot where it actually may be a really good time to continue to invest or get into the market, because a mixed environment really rewards people that are able to dig in, find good value and pick good winners.

    Angie Fenske:
    We have never seen more opportunities, and the deals that we’re spending time on are generally negotiated directly with the loan originators.

    This is ideal for us because we can be very selective in choosing the partners we want to work with.

    David Johnston:
    I think what you need to remember about this specialty finance market—given some of the regulatory changes that have happened across the US and Europe—is that it is here to stay.

    This is not a short window driven by rates or driven by some sort of cyclical environment. I think this is a permanent sea change in the market, with banks completely lifting out of this space . 

    The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.


    About the Authors

    Neil Hepworth is a Senior Vice President and Principal for AB CarVal, responsible for managing global investments in structured credit. Prior to joining AB CarVal in 2013, Hepworth was a director at BlackRock within their financial markets advisory business, where he advised European financial institutions and governments on legacy distressed structured credit and whole loan portfolios. He also worked for RBS in their European structured credit business and began his career at Dresdner Kleinwort Wasserstein in their structured credit research team. Hepworth holds an MEng from the University of Cambridge and a PhD in chemical engineering from Imperial College London. Location: London

    P.J. Collins is a Vice President and Managing Director for AB CarVal, where he is responsible for managing investments in consumer loan portfolios. Prior to joining AB CarVal in 2023, Collins was a managing director at Goldman Sachs, and before that, he worked at Morgan Stanley. Collins holds a BA in history from Yale University.

    Ms. Fenske is a principal for AB CarVal, responsible for leading credit-intensive consumer loan portfolios investments and energy transition investing. Prior to joining AB CarVal in 2000, Ms. Fenske was responsible for loan quality due diligence for the acquisition division of GMAC Mortgage Corporation. Ms. Fenske received her B.A. in Finance from the University of Northern Iowa and her M.B.A. from the Carlson School of Management at the University of Minnesota.

    Mr. Johnston is a principal for AB CarVal, responsible for managing investments in European loan portfolios. Prior to joining AB CarVal in 2013, Mr. Johnston was with Lloyds Bank focusing on deleveraging of the bank’s non-core portfolio across Europe. Mr. Johnston is a qualified lawyer having previously practiced in the banking and finance team of Jones Day in London. Mr. Johnston received his B.A. in economic history from the University of Exeter.