On market development, Patel observes broadening participation from managers and capital providers, with key opportunities lying in segments underserved by banks, such as small/medium business lending, esoteric assets and consumer finance. Patel says: “The last year has seen strong growth in asset-based credit, with more managers launching dedicated strategies and forming partnerships with banks to access quality deal flow. This evolution is driven by increased demand and a regulatory environment pushing banks to de-risk, particularly in Europe.”
Investor behaviour is shifting accordingly. Patel observes that private wealth channels are expanding allocations as portfolios mature and the need for differentiated income grows. “Investor appetite is increasing, as private credit portfolios mature and investors seek new diversification. Some investors are substituting asset-based lending for lower-yielding traditional fixed income. Private wealth clients are increasingly sophisticated and looking to asset-based credit for its attractive income potential that is generated from short-duration assets that are structured to assist with downside risk mitigation.”
Relative to corporate direct lending, Patel positions asset-based strategies as a complement in portfolio construction. In his view, shorter-dated, self-amortising cash flows tied to diverse collateral pools can moderate drawdowns and improve predictability, while maintaining exposure to real-economy activity. He adds that this granularity and collateralisation can help reduce correlation to traditional corporate credit risk, supporting capital preservation objectives within income-focused mandates. Typical collateral includes high-quality assets such as real estate, equipment, and accounts receivable.
When asked what is driving the step-up in attention, Patel points to structural and cyclical forces. The primary drivers behind the growing interest in asset-based credit strategies include ongoing bank retrenchment, which has led to a reduction in traditional lending and created opportunities for private capital to serve creditworthy borrowers at attractive, risk-adjusted returns. Structural features such as shorter duration and collateral-backed cash flows offer capital preservation and more predictable income. “The search for yield, diversification benefits, and advances in technology and data analytics have further accelerated interest in the sector,” adds Patel.
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Market uncertainties
Policy and trade remain live variables for underwriting. Tariff changes have the potential to increase costs and disrupt supply chains, making asset-based credit investments in import-heavy sectors — such as manufacturing, retail, electronics and auto parts — more vulnerable to margin compression and collateral volatility.
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“Asset-based lenders are responding by tightening borrowing bases, stress-testing collateral values, and actively increasing diversification to mitigate these risks,” says Patel. He notes that sectors with minimal import content are less exposed, but he still emphasises ongoing portfolio monitoring and prudent concentration limits.
Illiquidity and execution complexity are central considerations. Key risks and challenges investors should consider with asset-based credit include illiquidity and longer lock-up periods relative to traditional fixed income, given the private nature of the asset class. Patel adds that enforcing collateral and managing diverse asset types require robust legal frameworks, experienced servicers and clear workout playbooks. When it comes to manager selection, investors should prioritise platforms with a track record across cycles and tested servicing arrangements.
Diversification benefits are a consistent theme in how Patel places the asset class within fixed income allocations. “We believe asset-based credit can provide substantial diversification benefits within a fixed income allocation due to its low correlation with traditional fixed income and equity markets; returns are primarily driven by the performance of underlying collateral rather than broad market movements,” he says, adding that shorter duration can help reduce overall portfolio duration, with granular, collateralised pools providing more predictable cash flows and enhanced downside mitigation.
The rate environment cuts both ways, with the current higher rate environment increasing yields on new asset-based credit originations, making the asset class more attractive to investors seeking enhanced income. “Asset-based credit strategies often feature shorter duration and amortising structures, which help reduce sensitivity to interest rate changes and provide more predictable cash flows”, says Patel.
However, he also notes that higher rates can pressure leveraged or economically sensitive borrowers, so he stresses the need for deeper credit analysis, stress testing, and conservative structuring to manage risks when base rates are elevated.
Overall, growth prospects look strongest in small and mid-sized business lending, as well as in hard assets and esoteric opportunities, especially in Europe, where regulation is accelerating bank retrenchment. Patel also points to expansion in the Middle East and Asia as private managers partner with banks to originate and scale programmes with improved transparency and alignment for investors.
Edge and process
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Patel highlights operating experience as a practical advantage when evaluating partners and managing through periods of stress. He says team members who have built and scaled companies that typically borrow from asset-based lenders can bring different perspectives to diligence and oversight, particularly when collateral pools require hands-on management. In his view, this matters most when transactions need active intervention to protect principal and stabilise recoveries.
On sourcing, Patel says the team leverages direct relationships with boards and senior executives at non-bank financing companies, as well as a broad network that spans originating banks, fintech bankers, venture investors, ABS issuers, third-party vendors, and merchant banks.
“Neuberger’s size, reputation and longevity are expected to make our team a preferred lender, and we seek to receive better terms as a result. Neuberger’s broad global reach also confers a strong sourcing advantage, granting us access to deal flow outside of just the United States,” says Patel.
Technology and data underpin the investment process, as a dedicated data science team uses machine-learning models and proprietary infrastructure to analyse loan-level histories, forecast loss and prepayment patterns and project portfolio cash flows. Models are updated with new performance data to reflect market conditions and macroeconomic trends. At the same time, platform track records (with emphasis on recent vintages) feed analytical curves used to project returns for outstanding loans.
“Our proprietary cash flow engines use loan terms, loss estimates, prepayment rates, recovery assumptions, and servicing fees to calculate expected portfolio payments and returns. These integrated credit and cash flow models underpin our investment risk assessment, return calculations, and valuation of portfolios, including those considered for purchase in secondary markets,” says Patel.
He summarises Neuberger Berman’s approach as a blend of sourcing breadth, relative value discipline, bespoke structuring and data-driven portfolio management. “We leverage proprietary, direct relationships, including strong ties to the venture and banking communities, to access unique, high-quality deal flow and maintain lifecycle partnerships with portfolio companies,” he says, adding that a dynamic relative value framework is applied across sectors, geographies and capital structures to identify the best risk-adjusted opportunities. Bespoke structuring, he says, focuses on downside mitigation, often trading some upside for stronger first-loss protection and conservative covenants. The data platform aims to turn granular datasets into timely signals for underwriting and monitoring.
Stepping back, Patel sees an asset class drawing interest because it combines identifiable collateral with shorter duration and amortising profiles, allowing investors to target steady income while moderating drawdowns. He says the shift in bank intermediation continues to open space for specialist lenders to support creditworthy borrowers, and that process discipline — in structuring, servicing and modelling — will separate managers as competition increases. For allocators, Patel’s message is to treat asset-based credit as a complementary sleeve within fixed income, where diversification, collateral transparency and manager quality drive the probability of achieving resilient, risk-adjusted returns through the cycle.
“Periods of volatility have historically provided attractive entry points for private lenders to step in where traditional funding recedes,” Patel says, while adding that with careful portfolio construction, stress testing and ongoing monitoring, asset-based strategies can balance yield and security, even as tariffs and rates introduce new variables into cash flow dynamics.
