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Asset-Backed Finance

SCI in focus: ABF synergies or rivalries?

Insurer and asset manager private credit tie-ups proliferating

One key tailwind behind the acceleration and growth of asset-backed finance (ABF) this year is the increasing interest of insurance companies and alternative asset managers in this subsegment of private credit. Dynamics within this space are evolving and while many insurers are choosing to join forces with asset managers, some unaffiliated insurers might push back in 2025, seeking to assert greater control over their private credit investments.

“Insurance companies are sitting on significant capital from the growth in life policies and annuities driven by an ageing population,” explains Nicole Byrns, partner at Dumar Capital Partners. “With predictable cashflows, they are leveraging private credit and ABF investments for better risk-adjusted yields compared to equities or public bonds.”

Historically, insurers have relied on stable returns, often achieved through traditional bond portfolios. However, with yields dwindling in recent years, they’re starting to turn to ABF.

Indeed, ABF aligns neatly with insurers’ needs, catering to their long-duration liabilities and predictable cashflow requirements, while also offering diversification and reduced volatility compared to public markets. At the same time, asset managers are increasingly gravitating towards ABF as heightened competition in the broadly syndicated loan market and in direct lending has somewhat reduced profitability margins, making these avenues less attractive.

Need for long-duration financing

Further, as global demand for data centres, renewable energy infrastructure and reshoring industries continues to soar, the need for financing to support these large-scale, long-duration projects has never been more urgent. Asset managers - often joining forces with insurers - are stepping up to fill this gap, shifting their focus to hard assets.

This evolving dynamic is fostering synergies between insurers and asset managers, which are increasingly engaging in strategic partnerships. “Asset managers are keen to secure strategic partnerships with insurance companies in exchange for reliable, dependable, long-term capital,” confirms Byrns. “In turn, insurers benefit from these collaborations by gaining access to asset origination platforms and expertise, enabling them to invest efficiently in private credit markets.”

A recent case in point involves Natixis and Generali. In December 2024, Natixis Investment Managers – an affiliate of BPCE – and Italian insurer Generali announced plans to merge their asset management operations, creating a new €1.9trn AUM entity to drive a joint push into private markets.

But this is not an entirely new trend. Apollo’s merger with Athene in 2022 and KKR's acquisition of Global Atlantic in January 2024 are just two examples of a wider trend that has seen alternative asset managers capitalise on an insurance industry grappling with lower net investment spreads (NIS), fixed payments on legacy products and a less attractive product offering to customers over the last 15 years.

While many insurers and asset managers are expected to continue deepening their collaboration in private credit markets, unaffiliated insurers might choose a different path this year, however. "Speculation is growing that unaffiliated insurers may push back,” says Daniel Peart, md at Pillar Point Advisory. “One potential response could involve acquiring significant stakes in larger alternative asset managers, though the valuation premium remains a major obstacle.”

Alternatively, these insurers might opt to buy minority stakes in asset managers to improve deal allocation, set up in-house investment teams or acquire smaller asset managers to boost NIS. “They could also form 'sidecars' with co-investors to reinsure legacy books, easing balance sheet constraints and converting NIS into more valuable fee income,” adds Peart.

These dynamics suggest that the relationship between insurers and private credit markets remains fluid and evolving. “The sector is ripe for significant developments, making it an exciting space to watch,” notes Peart.

Private credit regulatory scrutiny

However, alongside the benefits of insurers’ ABF push, potential risks - such as credit, liquidity and asset-liability mismatches - could intensify in an economic downturn. “Some risks are well-managed, but new ones may emerge,” warns Jian Hu, md, structured finance at Moody’s.

US regulators, such as the National Association of Insurance Commissioners (NAIC), are stepping up efforts to improve transparency and manage risk within insurers’ private credit investments. Among the NAIC’s initiatives are updated bond definitions, the deactivation of private letter ratings for bonds lacking rationale reports and the introduction of an internal modelling tool to assess CLOs, which will replace reliance on external credit ratings. 

Yet, according to Hu, regulatory safeguards alone will not address remaining concerns, including underwriting risk controls, managers’ experience and track records - not only on individual deals, but also in overall operations - and alignment of interests throughout the product chain.

On the flip side, some regulatory changes may also open new doors for ABF. “Potential adjustments, particularly around the definition of accredited investors, could facilitate retail-level expansion in private credit, further driving growth,” says Mimi Eng, vp, senior credit officer, structured finance at Moody’s.

Ultimately, the interplay between insurers and asset managers will remain central to the evolution of ABF. As this space continues to mature, the road ahead will demand vigilance and caution, as an economic downturn could test the resilience and growth trajectory of private credit. “Ongoing monitoring is crucial,” concludes Eng.

Marta Canini

Asset-Backed Finance

Leverage anxiety

Reg cap marketeers rebuff regulator concern over leverage

Regulators past and present are worried about leverage in the reg cap market, but those in the sector say the concern is misplaced and may in fact scare off potential issuers and buyers.

They say that there is minimal leverage in the reg cap market, that it is well managed, and that borrowing opens the sector to a greater range of buyers which, in turn, lowers costs for issuers.

Rather than discouraging the use of reg cap trades regulators should turn their attention to more legitimate areas of concern, they argue.

In October 2024, the IMF sounded the alarm bell in its Global Financial Stability Report. “… Certain SRT characteristics could increase risks to financial stability. First, SRTs may elevate interconnectedness and create negative feedback loops during stress,” it began.

“For instance, there is anecdotal evidence that banks are providing leverage for credit funds to buy credit-linked notes issued by other banks. From a financial system perspective, such structures retain substantial risk within the banking system but with lower capital coverage,” it said, before going on to say that reg cap trades may in fact “mask” a bank’s resilience because while capital adequacy ratios are improved, actual capital levels are not.

The IMF has not been alone. In the month following the release of the GFSR, press reports appeared saying that risks which reg caps are designed to alleviate remain with the banking system. Sheila Bair, chair of the Federal Deposit Insurance Corporation (FDIC) 2006-2011, supported these conclusions, saying,” If a bank’s lending against the SRT instrument as collateral, you’re clearly not transferring the risk outside the banking system. Any counterparty investing in SRT using bank-provided leverage should be prohibited, full stop.”

Leverage is more widely used in the US market than in Europe as North American tranches tends to be first loss positions of 0%-12.5% and consequently more tightly priced than 0%-7% pieces. The Basel Endgame in its current form would increase tranche width to 0%-25% to receive optimal capital treatment.

In addition to official announcements, regulators of all stripes and varieties have also privately expressed disquiet about leverage being used to fund positions, according to lawyers and bankers who deal closely with them. “They are concerned that it keeps risks in the banking system and that banks providing leverage are just recycling the risk,” says one.

The IMF, FDIC and the Federal Reserve have been unavailable for comment.

Such sentiments have dismayed many market practitioners, whether investors, banks or advisors. “Quite frankly, some of the rhetoric from current and former govt employees might scare away some who would use this tool responsibly. A lot of regional banks should be doing CRT,” says a source.

A research paper published last week by established reg cap investor Seer Capital Management addresses these concerns head on and concludes that regulatory disquiet is unwarranted. “We believe regulators’ time would be better spent looking for undue risks and abuse in other areas, rather than focusing on reg cap leverage which is safe and appropriate if structured correctly,” Terry Lanson, md and portfolio manager at Seer, told SCI

Firstly, the report estimates that total leverage in the reg cap market is probably around €10bn, which is “hardly of a magnitude that could give rise to systemic risk.”

Seer arrives at this number by taking overall 2023 outstanding of €$55bn (according to IACPM data) and assuming that by yearend 2024 this had risen to around €60bn, taking into account 2024 maturities and new issuance.

Insurance companies, pension funds and supranationals, together comprising 25% of the investor base, never use leverage, which leaves specialist reg cap credit funds and asset managers. Assuming that about half or these buyers use leverage, and do so in about half the assets they buy, then total leverage in the system is likely to be less than €11bn. This shouldn’t give regulators the vapours.

Reg cap trades have also demonstrated stability over time, and only a modest amount of leverage can bring yields over minimum return targets. Moreover, says the report, this benefits issuers as it increases investment capital and leads to a more competitive market with lower costs.

Leverage is attractive to lenders due to the stability of reg cap trades but also because positions are managed with mark-to-market protections but also recourse to other investments should prices turn sour.

Lenders, in fact, apply the same criteria and hedges that they do to other loans, so, to many in the market, it seems inconsistent for regulators to apply different judgements for leverage use in reg cap trades than they do to other forms of bank lending.

“Banks take on all sorts of loans where there are different layers of risk and in this case the bank providing leverage recognizes this and risk weights it appropriately,” comments Matt Bisanz, a partner at Mayer Brown and an expert in the SRT field.

It might of course be argued that margining requirements are redundant as reg cap positions will prove illiquid in the event of a market dislocation, but in the Covid crisis of spring 2020 reg cap junior tranches traded more actively and at higher prices than BB-rated CLOs. During that period, CLO prices collapsed to 50 cents on the dollar, while reg cap positions – “supported by a group of dedicated investors with confidence in the market who sought to add risk” says the report – never sunk below high 70 cents.

“In various forms, CRT is a good tool. Regulators should leave it alone and leave banks to lend and use tools at their disposal to manage this stuff,” says another market source.

Even if regulators were to try to clamp down on use of leverage in the SRT market, some of the principal lenders are outside their purview. Anecdotally, two of the biggest are Nomura and Tokyo Marine and Fire Insurance, and one of those isn’t even a bank.

Should well-publicized regulatory concern intimidate smaller banks from issuing CRT, then they can, as sources point out, stipulate to buyers that no leverage is to be used in any particular deal. Such restrictions are sometimes put in place for margin credit stock purchases. To be sure, that would restrict the universe of potential buyers but access to the market would be maintained.

The inconsistency towards reg cap trades demonstrated by regulators attracts criticism from those in the market. “In September 2023, the Fed approves CRT.  A year later current and former officials are criticizing it.  Five years ago, it was stimulus, inflation, then rate hikes.  We’re riding the US government pendulum, and we need a steadier and more informed hand,” says Charles Callahan, founder and CEO of Heliostat Capital, a New York boutique structured finance advisory.

Whether the hand of the incoming administration is steadier and more informed is, perhaps, open to debate, but it is expected to be considerably more understanding of the role leverage plays in the financial system. A diminution of criticism at least from US regulators is probably on the cards.

Simon Boughey

Asset-Backed Finance

Best of frenemies

Bank-asset manager ABF partnerships set to accelerate

ABN AMRO and Ares Management this week forged a strategic collaboration on a €1.3bn infrastructure loan portfolio, marking the latest in a growing wave of partnerships between banks and alternative asset managers. The deal highlights the increasingly intertwined relationship between traditional lenders and private credit sponsors.

“This collaboration will not only strengthen our position in the infrastructure financing market, but also enhance our ability to sustain growth and continue to best serve our clients,” says Ramses Kaijen, head of credit portfolio management at ABN AMRO.

Felix Zhang, partner at Ares, echoes this sentiment: “We believe this transaction underscores our flexible balance sheet optimisation and extension solutions across asset classes and regions.”

Scope of partnerships expanding

According to a recent Moody’s report, such partnerships have surged from a single deal in 2021 to over 10 in 2024, with 2025 already seeing multiple collaborations.

“While we've highlighted some deals in the report, there are likely many more that we’re not yet aware of,” says Jian Hu, md, structured finance at Moody’s. “The overall takeaway is clear: the scope and pace of these activities are expanding significantly. With the new Administration strongly focused on supporting industries like data centres, we see this momentum continuing.”

But why are these different organisations – ostensibly natural competitors in the loan-making business – now working together? Banks are increasingly offloading asset-based products – such as mortgages and credit card receivables – to private credit sponsors.

“By offloading some of this origination to alternative funding sources, they can maintain growth without overly relying on capital markets. Additionally, these partnerships foster mutually beneficial relationships with private credit lenders who seek these assets,” explains Mimi Eng, vp, senior credit officer, structured finance at Moody’s.

“It’s a symbiotic dynamic, with strong synergies moving forward,” adds Eng.

Faced with higher regulatory constraints under Basel 3.1, several banks are opting for collaboration over competition with alternative asset managers. Large banks, on the other hand, are scaling up their private credit investment capabilities in their internal asset management divisions.

For instance, Goldman Sachs recently announced the creation of a capital solutions group within its global banking and markets unit, alongside the expansion of its alternative investment team to better serve its clients and grow its private credit business.

Innovation driving ‘win-win scenario’

While the rise of bank-asset manager partnerships has accelerated in the past few years, banks' appetite for innovation is not entirely new. "Even though we’ve seen bank disintermediation throughout the last few decades, banks were always behind this innovation,” says Nicole Byrns, partner at Dumar Capital Partners. “They would partner with somebody or selectively use their balance sheets to push this innovation."

In turn, by partnering with banks, asset managers gain access to valuable origination channels and expertise they lack. "Asset managers don't have the origination channels, the relationships that banks do; nor do they really have the manpower to build out a whole relationship team to do that," adds Byrns.

This creates a win-win scenario. “Banks still retain their client relationships and earn fee revenue, while asset managers make their origination channels very efficient and deploy capital into opportunities banks are less inclined to pursue,” Byrns continues.

These evolving dynamics are poised to have an impact on the broader securitisation market. Moody’s forecasts that private ABS volumes could reach US$500bn in five years, while private credit CLOs – also known as middle market CLOs – could grow to US$200bn.

Beyond ABN AMRO and Ares, earlier this month, Standard Chartered and Apollo (via its Apterra platform) forged a US$3bn strategic partnership focused on infrastructure and clean energy transition financing. Another example of innovative bank-asset manager collaborations emerged in December last year, when HSBC structured a US$240m capital call facility as a securitisation for ICG.

“Structured as a capital call facility, this deal highlights a trend we have been observing for several years and is an exciting realisation of an innovative approach that was anticipated by the fund finance community for the past couple of years,” says Arnaud Arrecgros, co-head of Luxembourg Finance at Maples Group, which acted as advisor to ICG in this transaction.

The transaction - in which HSBC held the senior tranche, while ICG the junior tranche - was the first capital call facility structured as such for the asset manager.

As the private credit sector continues to gather momentum and financing demand soars in sectors like renewables, data centres and infrastructure, more banks are expected to form strategic alliances with asset managers in 2025.

Marta Canini

Structured Finance

Shaping Aperture's structured credit strategy

Vladimir Lemin, global head of structured credit at Aperture Investors, answers SCI's questions

Q: You recently joined Aperture to lead the newly launched structured credit strategy. What attracted you to the firm and role?

A: Throughout my career, I’ve been fortunate to work with and learn from some of the best investors and risk managers at Magnetar Capital and One William Street Capital. My time at the Wharton School also sparked a special interest in studying what drives organisations to outperform their competition, particularly from a people management perspective. 

When I learned about the opportunity to build the structured credit business from the ground up on the Aperture platform, I knew I couldn’t pass it up. It’s an incredible team that Peter Kraus has assembled at Aperture Investors, and I’ve been deeply impressed by the quality of people and the top-tier business practices in place at the firm. I’m truly proud to be part of the next chapter in the company’s evolution.

Q: What are your expectations for the new role, and what plans are in place for building out the team?

A: It’s interesting that you're asking this question, as building a best-in-class investment team is my number one priority. Given the stable nature of our capital and the fact that we are focused on building a long-term business – rather than simply executing a distressed trade with the intention of closing it when we harvest returns – we are able to attract top-tier talent. We have had in depth conversations with investment professionals who have excellent track records and broad expertise across various structured credit markets and we are close to expanding the team in the near future. 

Q: What do you see as the particularly exciting opportunities in structured credit for Aperture? The announcement mentioned US housing, commercial real estate, consumer borrower markets and ‘emerging sectors’. Could you expand?

A: The investment landscape in structured credit is such that, while consumer fundamentals have deteriorated beyond pre-COVID levels, many asset classes are trading at their 24- to 36-month tights, meaning the projected excess returns are as low as they have been in years. However, if the goal is to generate elevated returns similar to those of the last two years, there are at least three approaches to consider. 

The first is to keep investing in the strategies that have worked, but lever them up more. The second is to pull back on risk, invest in safer securities, and wait for a market sell-off to reload. The third is to find new investment opportunities with under-appreciated sources of returns and idiosyncratic drivers of profitability. It is this third strategy that we will pursue, coupled with new ways to analyse investments and manage risk. 

Some of the less crowded trades that may present opportunities include esoteric ABS, second lien mortgage loans, and distressed CMBS, to name a few.

Q: Why the focus on esoterics? 

A: New sectors within ABS such as securitisations backed by EV’s, data centres, and fibre optical networks will give investors unique opportunity to benefit from tailwinds and secular trends in the industry, while having a natural protections afforded to fixed income investors.

Q: [Aperture ceo] Peter Kraus has said the new strategy will enable the firm to “attract additional” investors “seeking above-market returns”. Are there any investors in particular that the firm is looking to attract?

A: Our strategy is well-suited for a broad investor base, ranging from traditional fixed income investors to those who have historically been under-allocated to bonds, and even up to innovation-driven funds investing in disruptive technologies. Let me explain why.

The structured credit asset class offers the opportunity to harvest excess returns for a given level of risk, beyond what’s available in the corporate bond universe. Therefore, traditional fixed income investors, who have focused primarily on government and corporate bonds, can optimise their returns by investing in this sector.

Similarly, for institutions that are under-allocated to fixed income, it makes sense to focus on structured credit as they expand their portfolios into bonds, rather than investing exclusively in government and corporate securities.

Additionally, there’s a strong argument for diversification. Unlike corporate bonds, which are directly tied to fundamental credit, many sectors within structured credit have very different sources of returns. These range from the return to working five days a week in an office, to supply shortages in the US housing market, to gig workers needing cars to get to their plumbing or gardening jobs. 

By allocating part of your portfolio to structured credit, you diversify risk and open the door to returns from previously untapped markets.

Q: Is there anything in particular that you would like to put on record as you embark on this new role?

A: I’m very excited about starting this new business, building a team, and doing something a bit differently from what established players typically do. We’ve touched on diversification and highlighted investing angles that haven’t traditionally been emphasised. I believe we can break the old paradigm of “stocks are cool and bonds are boring' by showing investors how they can access new sources of returns through structured credit—investing in a secured way, with real assets backing their bonds, rather than buying high-flying stocks. 

Marina Torres

Structured Finance

Job swaps weekly: Oaktree puts the boosters on ABF team build-out

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Oaktree making a number of key appointments as it ramps up its asset-backed finance strategy. Elsewhere, Morgan Lewis has snapped up a structured finance partner from Akin Gump, while Blackstone has hired a former Atlas SP director as principal in its credit and insurance platform.

Oaktree Capital Management has hired three professionals and made a key promotion as it builds out its asset-backed finance strategy. The firm has hired former Atalaya Capital Management md Rana Mitra as an md in its New York office, former Waterfall Asset Management vp Stephanie Masters as senior vp in its Los Angeles office and former Goldman Sachs Asset Management ABF investor Matthew Scheer as a vp in its New York office. It has also promoted head of global tax structuring Jennifer Marques to head of strategy and structuring for ABF.

In May last year, Bloomberg reported that Oaktree was looking to raise US$2bn for its debut asset-backed finance fund. In its Performing Credit Quarterly newsletter in Q3 last year, the firm said that it believes the next chapter in the “private credit story” is the migration of ABF towards alternative lending providers from traditional lenders. 

Marques joined Oaktree in 2017 from Clearly Gottlieb Steen & Hamilton, where she spent two years. She also previously worked at Goldman Sachs. 

Meanwhile, Rana left his role as md at Atalaya, a private credit firm that specialises in asset-backed situations, in September last year after 15 years with the firm. He previously worked at Del Mar Asset Management, Marc Bell Capital Partners and Bear Sterns.

Masters spent three years at Waterfall, where she focused on contract finance with a specialisation in private asset-backed credit, leaving the firm in August 2024. She previously spent seven and a half years at Allen & Overy. 

The fourth new member of the team, Scheer, joined from Goldman Sachs – whom he was with for three and a half years – in December. He previously worked at Tetragon Financial Group and Morgan Stanley.

Elsewhere, Morgan Lewis has hired structured finance lawyer Dasha Sobornova as a partner from Akin Gump. Based in the London office, she advises arrangers, investment managers, investors, and corporate service providers on an array of UK- and EU-related securitisation and structured finance work, with a particular focus on representing lenders in CLO transactions.

Sobornova leaves her role as partner at Akin Gump after two and a half years with the firm, and was previously a partner at Mayer Brown. She also previously worked for Paul Hastings, Ashurst and Reed Smith.

Aleksandr Epshteyn has joined Blackstone’s credit and insurance platform (BXCI) as principal, leveraging extensive experience from his previous role as director at Atlas SP Partners, where he worked since February 2023. During his tenure at Atlas, he co-founded the tactical situations group, driving over US$5bn in asset-backed financing across sectors such as NAV lending, residential, commercial, and esoteric assets. 

Prior to Atlas, Epshteyn spent seven years at Credit Suisse, most recently serving as director in securitised products from 2015 to 2023. Earlier in his career, from 2012 to 2015, Aleksandr was an asset-backed finance and securitisation analyst at Wells Fargo Securities.

Dechert has hired Milbank’s Craig Cohen as partner in its global tax group, with a focus on structured credit and transactional practices. Based in the firm’s New York office, he specialises in CLOs, structured credit and securitisation, as well as having expertise in leveraged finance and asset-based lending transactions. 

Cohen leaves his position as special counsel at Milbank after three years with the firm. He was previously a partner at Chapman and Cutler, where he spent five years, and had spells at Allen & Overy and Hughes Hubbard & Reed.

BMO Capital Markets has promoted Vivek Baliga to md and head of ABS and CRT trading, based in its New York office. Baliga joined BMO in 2018 as part of the firm's acquisition of KGS-Alpha Capital Markets and is promoted from md and head of non-agency RMBS trading. He held the same title at KGS-Alpha prior to the merger and originally joined the business in 2014. Prior to that, he had speels at Pierpont Securities, Cortview Capital Markets, BGC Partners, Bear Stearns and JPMorgan.

Art Capital has recruited Martin Sheridan as its third partner, following the structured finance advisory firm’s launch in September 2024. Based in London, Sheridan has over 17 years’ experience in the UK and Irish real estate finance markets. He was previously md, credit strategies at BGO, which he joined from NatWest in April 2016.

Morningstar DBRS has promoted Scott Rossman to vp, US ABS, based in New York. He was previously an avp at the firm, which he joined in March 2016.

Kenny Wastell, Marta Canini, Corinne Smith, Ramla Soni