Inside Private Credit: Comparing Direct Lending and Asset-Backed Finance

This document is a technical report that compares two significant approaches within private credit: direct lending and asset-backed finance (ABF). It outlines how private credit has evolved as a core allocation for investors, particularly as traditional financing channels become more constrained. The report details the primary borrowers, sources of repayment, collateral types, risk focuses, and underwriting processes associated with both direct lending and ABF. It explains that direct lending typically involves corporations and relies on cash flow from business operations, while ABF is centered on cash flows generated by underlying assets. The report also discusses the structural protections and yield potential of each approach, providing insights into how understanding these differences can aid investors in building resilient portfolios across market cycles. Additionally, it touches on the risks associated with private credit investments and the importance of considering these factors before investing.