Edwin Wilches: Asset based finance is attracting a lot of attention right now. Investors are increasingly drawn to additional spread available compared with similarly rated corporate credit. However, one of the biggest misconceptions is that the asset or the collateral securing the investment alone makes an investment worthwhile. In reality, collateral is only part of the story because not all assets are created equal.

Loren Sageser: What really matters is the structure around those assets. The strength of the covenants, the governance framework and the lender's ability to intervene if cash flows weaken often determine outcomes far more than the headline collateral itself.

Edwin: The opportunity set is certainly expanding. Private asset based finance can provide exposure to areas in the real economy ranging from consumer and commercial finance to real assets to fund finance and many other specialized sectors. As the market expands, the opportunity set is becoming broader but also more uneven. Borrowers are seeking more customized financing solutions and investors are sometimes being offered attractive spreads and structural protections in return for giving up some liquidity. That creates opportunity, but it also raises the bar for underwriting.

Not every asset is suitable for asset based finance. A collateral pool needs to be transparent, transferable, serviceable through stress markets, and supported by enough historical data to understand how it behaves in different economic environments. As more capital enters the market, investors need to be careful to not confuse extra yield or complexity with a free lunch. Experience and asset class expertise matter a lot. Analyzing consumer risk is different from analyzing corporate risk, and both are very different from underwriting real assets or contractual lease cash flows.

Loren: That's particularly important during periods of stress. Unlike unsecured corporate lending, performance in asset based finance is driven primarily by the underlying collateral and the structure put in place from day one. The real work happens before a transaction is closed. Underwriting, scenario analysis and structural protections largely determine how resilient a transaction will be when conditions deteriorate. Strong reporting, enforceable covenants, appropriate triggers and high quality servicing all help investors identify problems early and take action before losses compound.

Edwin: In our view, that is where experienced managers can make a meaningful difference. As the market continues to evolve, investors will need to distinguish between opportunities genuinely supported by durable cash flows and those that simply repackage mispriced risk. In asset based finance the assets may provide the security, but the structure, governance and underwriting discipline ultimately determine how much value investors retain across their portfolio. That is what separates opportunity we see today from just generic market risk.