Why asset-based finance could be the next essential tool for RIAs

For RIAs seeking to expand client portfolios beyond traditional markets, asset-based finance could be a compelling opportunity, according to the head of private credit at independent alternative investment firm Saluda Grade.  

Blake Eger argues that ABF is not just a niche within private credit, it represents its future, and she’s been telling InvestmentNews why it should be a consideration for advisors and their firms.

“RIAs should consider ABF as a strategic component of portfolio construction for several main reasons,” Eger says. “These include consistent income production, diversification within private credit, and low correlation to traditional asset classes.”

Unlike equity-heavy strategies, ABF investments typically consist of loans that generate predictable monthly or quarterly cash flows.

“Because returns are secured by tangible assets and less dependent on equity or corporate credit markets, ABF has historically demonstrated low correlation to stocks, bonds, and other core exposures,” Eger explains, adding that there are two defining features that differentiate ABF from other private credit strategies, namely collateral and diversification.

“ABF involves exposure to pools of secured loans, each backed by hard assets like homes, vehicles, equipment, receivables, or royalties. In contrast, traditional private credit (primarily direct lending) involves loans to businesses secured by enterprise value and cash flow projections, not tangible collateral,” she says.

ABF portfolios are also typically more diversified.

“A residential mortgage securitization might contain thousands of loans, whereas direct lending exposure is typically more concentrated and more correlated to sponsor or sector performance.”

Structural tailwinds

Eger highlights two macro shifts that are fueling growth in ABF.

“First, following the GFC, heightened regulation has constrained bank lending in sectors such as construction and commercial real estate. Specialty finance firms and fintech platforms have filled this gap, creating scalable opportunities for institutional investors,” she says. “Second, and more recent, a sustained higher-rate environment has increased funding costs for many companies. This has pushed borrowers to seek financing secured by collateral, which often carries more attractive rates and access to liquidity.”

Historically, ABF was the domain of institutional investors through securitization markets, but times are changing.

“While the underlying exposure is essentially the same as those in modern ABF strategies, these investments were closed to most RIAs due to regulatory restrictions and high investment minimums,” Eger explains. “Today, that barrier is beginning to break down. Advisors can access diversified pools of loans (such as mortgages or HELOCs) through private fund structures without needing to buy into public securitizations, enabling more tailored and efficient exposure for clients.”

Eger says that Saluda Grade’s focus on residential credit is rooted in two macro dynamics.

“First, equity in the US housing market is at a historically high level. US homeowners hold approximately $50 trillion of equity, representing approximately 73% of total housing market value,” she says. “This untapped liquidity is increasingly being accessed through home equity loans and alternative financing products.”

The second driver is supply-demand imbalance.

“Since the GFC, household formation has outpaced housing supply by approximately 3.5 million units. This supply-demand imbalance underpins long-term strength in housing credit,” she says. “At Saluda Grade, one of the ways we invest into this trend is by participating in the residential transition loan market, short duration loans for renovation, rehabilitation, or the creation of new housing.”

Eger sees ABF becoming central to the evolution of private credit.

“We expect ABF to become a core component of the private credit ecosystem over the next 3–5 years, driven by demand for diversified, income-producing, and collateral-backed exposures,” she says. “Tomorrow’s definition of private credit will extend beyond traditional corporate direct lending to encompass structured, asset-backed strategies that provide more granular risk exposures, lower correlations to public markets, and enhanced loss mitigation through hard-asset collateral.”

But Eger says this evolution will not simply be cyclical but structural and catalyzed by regulatory changes, capital treatment dynamics, and technological improvements in origination, servicing, and data transparency.

Looking ahead, she expects allocators to construct more multi-dimensional private credit portfolios.

“While middle-market and sponsor-backed lending will remain important, we expect broader adoption of strategies that integrate asset-based lending, residential and consumer loan exposures, and specialty credit verticals such as equipment leasing, auto loans, and royalty-backed cash flows,” she says.

In Eger’s view, ABF is not a complement to private credit, but its natural next phase.

“As access pathways to ABF continue to evolve, we see the lines blurring between what was once only available to banks and insurance companies and what is now investable by RIAs, family offices, and private wealth platforms,” Eger concludes.