Rethinking fixed income: How asset-based strategies are built for a multi-regime world
In a world shaped by structural volatility, persistent inflation uncertainty and shifting market correlations, traditional assumptions are being challenged. As a result, institutional investors are taking a close look at the role of fixed income within portfolios.
Duration is no longer functioning as a consistent diversifier hedge, while correlations between equities and bonds have become less predictable. Income generation has re-emerged as a central driver of portfolio construction.
Against this backdrop, ABC is gaining traction among allocators seeking more resilient and diversified sources of income. Unlike traditional corporate lending, ABC is backed by pools of hard or financial assets that generate contractual cashflows – ranging from consumer receivables and equipment leases to data centres and aircraft leasing.
The attraction is not simply higher yield. Increasingly, investors view ABC as a way to gain exposure to the real economy through shorter-duration, structurally protected assets that can potentially offer lower sensitivity to broader market volatility.
This shift is occurring at a time when investors across Asia face a more complex allocation environment. Insurers, pension funds and sovereign entities are balancing the need for predictable income against tighter capital rules, greater liquidity scrutiny and pressure to diversify beyond concentrated public market exposures.
An emerging opportunity
The growth of asset-based finance is also being driven by structural changes within the banking sector.
Following years of regulatory tightening and higher capital requirements, banks globally have continued to retrench from certain forms of capital-intensive lending. At the same time, non-corporate and asset-based credit now accounts for the majority of US bank loan holdings, creating a large and evolving opportunity set for private capital providers.
This has coincided with the rise of fintech originators, platform-based lenders and, increasingly, sophisticated underwriting technologies. Open banking frameworks and advances in data analytics are also expanding the ability to assess and monitor granular pools of credit risk.
The result is a growing ecosystem of specialty finance opportunities spanning areas such as point-of-sale lending, small business finance, receivables financing, media royalties and digital infrastructure.
Importantly for asset owners in Asia, many of these opportunities originate in mature US and other lending ecosystems, providing exposure to diversified sources of risk premia beyond traditional domestic credit markets.
In many ways, this reflects a broader evolution in portfolio construction: from beta-driven allocation towards outcome-oriented investing focused on income resilience, diversification and downside mitigation.
Duration matters again
A key attraction of ABC in today’s environment is its shorter duration profile.
Traditional corporate direct lending strategies often involve five- to-seven-year exposures with bullet maturities and refinancing risk. By contrast, many asset-based finance investments are self-amortising, generating regular principal and interest repayments over shorter timeframes.
Typical underlying asset durations in ABC strategies often range between six months and two years. This can provide investors with greater flexibility and faster repricing ability during volatile rate environments.
For institutional allocators navigating uncertain inflation and rate trajectories, shorter duration exposure is increasingly valuable.
It also changes the traditional relationship between yield and duration. Historically, investors often had to “go out the curve” to access higher levels of income. Today, many shorter-duration private asset-based opportunities can potentially offer comparable – or even higher – yields than longer-duration corporate credit exposures.
According to Neuberger’s capital market assumptions, private asset-based credit strategies can potentially offer higher estimated returns across multiple weighted-average-life ranges compared with traditional public fixed income assets.
Structural protection and diversification
Another defining feature of ABC is the degree of structural protection embedded within transactions.
Many deals incorporate over-collateralisation, first-loss protection, covenant-heavy structures and bankruptcy-remote vehicles designed to enhance downside resilience. This differs materially from traditional corporate lending, where investors are often exposed primarily to enterprise value and broader business performance.
Instead, ABC investors typically lend against diversified pools of receivables or hard assets with contractual cashflows and more granular performance data. Examples can include consumer loans, equipment finance, invoice lending, auto receivables, aircraft leasing or even telecom towers and fibre infrastructure.
Such exposure is generally less reliant on corporate earnings cycles and can provide more stable underlying cashflow characteristics across market environments. Neuberger notes that even during the global financial crisis, credit card receivables continued generating positive excess spread despite elevated charge-offs, reflecting the structural income embedded within the asset class.
Alpha, not beta
Yet not all ABC strategies are created equal. The distinction between more commoditised beta exposures and higher-alpha specialty finance strategies is becoming increasingly important.
Larger-scale public ABS and mortgage-related exposures may offer lower-risk, lower-yield characteristics. By contrast, more specialised private asset-based strategies often focus on shorter-duration, less intermediated opportunities where complexity, structuring expertise and origination capability can drive excess returns.
That places significant emphasis on manager selection. ABC returns are typically driven less by broad market beta and more by sourcing networks, underwriting capability, data analytics and structuring expertise.
Operational scale matters, too. Asset-based finance strategies can involve significant legal, operational and surveillance complexity, requiring dedicated infrastructure and specialist expertise.
Complement rather than replacement
For most institutions, ABC is unlikely to replace traditional fixed income or direct lending allocations entirely. Instead, it is increasingly being viewed as a complementary allocation given the potential for shorter-duration income, differentiated sources of return and diversification away from concentrated corporate credit exposures.
Implementation flexibility is also expanding. Strategies are now available through multiple formats including evergreen structures, interval funds, separately managed accounts and rated-note feeders. That appeals to insurers talking capital treatment requirements.
As markets continue adjusting to a more fragmented and complex macro environment, we believe ABC can count on its yield profile as well as its ability to combine income generation, structural downside protection and exposure to real economic activity in ways that align with the evolving priorities of institutional portfolios.
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