Nomura Capital Management

Our Chief Investment Officer Matthew Pallai recently spoke with Tom Stabile of FundFire about the rise of asset-based lending as we head into 2025. Matt shared the impact of higher #InterestRates as a factor in the growth seen in 2024, noting “banks are in a tough spot for where their books are marked.” He also discussed opportunities in strategies with a significant focus on asset-based loans. #AssetBasedLending #PrivateCredit Read more: https://lnkd.in/eUvJzvrU

Nomura Capital Management wishes everyone a wonderful holiday season and a happy New Year. We look forward to a great 2025 ahead.

One of the keys to evaluating the risks in any credit market is understanding the level of “protection” an investor has against those losses – different factors affect the degree to which an investor is insulated from loss, with the most significant considerations given to: (1) level of subordination in the capital structure (2) how wide the tranche attachment and detachment points are (3) how predictable and variable losses on a particular collateral type will be (4) the loan to value ratio of the collateral (5) the degree to which the loans are secured – unsecured, first lien (“1L”) or second lien (“2L”). Read what factors we believe mitigate losses for investors in asset-based lending (“ABL”) and why we believe ABL offers a strong risk reward profile: https://lnkd.in/e3x2eKpM #PrivateCredit #AssetBasedLending

With the #FederalReserve’s final policy-setting meeting of 2024 this week, the focus is on whether a potential 25bps rate cut will be followed by a pause in January. In a recent conversation with Sarah Hansen of Morningstar, our Head of Portfolio Management and Cross Asset Strategies, Matt Rowe, shared “The Fed [is] trying to balance keeping #inflation in check with keeping labor markets healthy.” While relatively firm inflation data points to a need for higher rates, a resilient #LaborMarket may justify further easing. Matt notes, “Inflationary data would suggest that the Fed should pause. Labor markets suggest that the Fed might continue to slow accommodation.” Read more: https://lnkd.in/gdAmA4PA

The risk premium earned within these private credit asset classes can be broken down into several components – where part of the yield is driven by: (1) base rates (2) credit spread similar to public market equivalents (3) liquidity premium commensurate with the duration of the asset (4) an idiosyncratic or complexity premium Read what drives the yield profile earned in asset-based lending (“ABL”) and direct lending and how the payment schedule differs between ABL and direct lending: https://lnkd.in/e3x2eKpM #PrivateCredit #AssetBasedLending

"The market is assuming that Powell cuts next week and then pauses,” says our Head of Portfolio Management and Cross Asset Strategies Matt Rowe ahead of the final #FOMC meeting of 2024. Matt recently spoke with Sinead Carew of Reuters about expectations for the Fed’s ongoing battle against #inflation. He continues, “I think that's the right assumption because we're seeing a tension between the inflationary data and the labor-market data." Read more: https://lnkd.in/eUrhJYnW

“The benefits of private credit are very clear. You have the potential for yield enhancement, you have much lower correlation to the public markets, and it can provide significant diversification to anyone’s portfolio,” noted our CEO Robert Stark when he recently sat down with Keith Black, PhD, CFA, CAIA, FDP, CDAA of RIA Channel to discuss the growth of private credit market and where he sees opportunity within. Robert highlighted the role private credit can play in a portfolio and how it can serve as a valuable tool for investors. Watch here: https://lnkd.in/eHqaMi2k #PrivateCredit #Diversification #RIAs

We estimate the size of the private asset-based lending market to be approaching $15 trillion. The largest market is the private mortgage market which we estimate to be almost $8 trillion, split ~$5 trillion residential and nearly $3 trillion commercial. There are several asset classes within the private asset-based lending market that are each over $1 trillion in size and growing such as autos, small business, equipment, and credit cards. Read more on the ABL market breakdown and why private ABL is a growing financial product within private credit: https://lnkd.in/e3x2eKpM #PrivateCredit #AssetBasedLending

How does the payment schedule differ between asset-based lending (ABL) and direct lending? Direct lending deals are typically structured with a 5–7-year bullet maturity, meaning investors should expect to receive periodic interest payments and a lump sum principal payment at maturity. Asset-based loans are generally structured with amortization payments linked to the gradual pay down of their underlying collateral. Investors would therefore receive a combination of periodic interest and principal throughout the life of the investment, protecting them from interest rate risk by lowering the duration of the asset. Learn how typical amortization schedules of ABL and direct lending differ: https://lnkd.in/e3x2eKpM #AssetBasedLending #PrivateCredit

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