@MetLife Investment Management.
Jason Young, CFA, Head of U.S. Corporate Private Placements and Private Asset Based Finance, MetLife Investment Management
Paul Carroll, CFA, Managing Director, Private Asset Based Finance, MetLife Investment Management
Priya Desai, CFA, Managing Director, Private Asset Based Finance, MetLife Investment Management.
Private Asset-Based finance (ABF) has moved squarely into the spotlight for insurance investors seeking yield, diversification, and greater control in the otherwise crowded world of fixed income and traditional private credit. While ABF may seem like a rebranding of asset-backed securities (ABS), its private market characteristics make it fundamentally distinct, and increasingly potentially attractive for insurance investors.
ABF transactions are cash generative, often characterised by stable, predictable cash-flows and backed by hard assets as collateral. Private ABF sectors finance the everyday economy and can represent investments such as auto loans, credit card receivables, equipment and data centre financings, select types of residential or non-agency mortgages, and private equity fund loans. These collateral pools are then packaged into bankruptcy-remote SPVs, which shield investors from sponsor risk. Unlike public ABS, private deals are typically directly negotiated with the origination platforms. This has several implications: investors can tailor covenants, dictate size, negotiate bespoke protections, and gain access to far more detailed, proprietary collateral data. Practically speaking, this could mean more control, increased investor protections, and less risk of being “cut back” on allocations, as is the so often the case with more broadly syndicated public deals.
The wake of the 2008 financial crisis saw a regulatory pivot and bank retrenchment, opening the door for non-bank insurers to step in as direct lenders and dealmakers. Flexibility is the draw for issuers: private ABF can accommodate esoteric collateral types, variable loan draw schedules, or special tenors that don’t fit the rigid “one-size-fits-all” mould of public markets.
Not all investors can play: seat-at-the-table negotiating power in this space requires the ability to commit $50–500 million or more per deal. For large insurance platforms, we believe this scale makes all the difference, not just in origination access, but in delivering bespoke solutions to borrowers and partners. Medium and small insurance companies often partner with larger ones to achieve diversification with smaller allocations.
We’re currently bullish on the risk-return profile. Our private ABF portfolios target an average rating of Single A, with all deals receiving third-party ratings. In today’s market environment, we see Single A portfolios achieving spreads of 150–200 basis points in excess yield over public corporate Single A indexes.1 The asset class spans a wide range of durations, and with the exception of residential mortgages, most ABF collateral pools (auto, equipment, fund finance) have lower prepayment risk in our view.
Regulatory scrutiny has intensified, with model-based capital charges and new bond definitions being implemented. This is a risk, and thoughtful engagement and adaptation are required. Even so, active structuring continues to put sophisticated investors in the driver’s seat.
Looking forward, fund finance, residential credit, and commercial assets stand out as potentially attractive areas for investment. Meanwhile, heavy competition in consumer credit has squeezed spreads, urging a selective approach. The bottom line: we believe private asset-based finance is now a critical lever for insurers seeking enhanced yields and protection, and diversification in today’s credit markets.
Endnote
1 Portfolio spread data reflects MetLife Investment Management (MIM)’s internal averages and observations based on recent market transactions.
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