Wine, Music, and Jets Draw Scrutiny of Asset-Backed Private Debt

After pouring billions into asset-backed finance, private credit managers and investors are starting to scrutinize what exactly they get back if their bets sour.

- KAT HIDALGO

With types of collateral ranging from mortgages, to music royalties, to physical assets like aircraft, the answer to that question can mean the difference between an easy recovery and being stuck with something hard to sell. The manufacturing equipment might be bolted to a factory floor. The fine wine backing the loan may have spoiled. Or the company's output could be so specialized that it's nearly impossible to offload.

Investors are becoming more discerning after a period of rapid growth in the sector, fueled by demand from insurance companies for investment-grade rated strategies. KKR & Co, which recently amassed about $6.5 billion of capital in one fundraise to invest in asset-based finance, estimates that the market could grow to more than $9 trillion by 2029.