Asset-Based Finance: Investing in Consumers

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 .