In recent months, the bankruptcy of First Brands Group has renewed scrutiny of one of the fastest-growing corners of the private-credit world: asset-backed finance, widely known as ABF. Once viewed as a specialized niche compared with traditional direct lending, ABF is rapidly emerging as a defining force in alternative investments as its scale and influence accelerate across global markets.

Unlike conventional loans that hinge on a company’s future cash flows, asset-backed finance is structured around a specific asset, revenue channel, or loan portfolio that serves as collateral. Data from KKR underscores how dramatically this market has expanded. Since 2008, the size of private ABF has more than doubled, with estimates placing its value above $6 trillion—surpassing the combined volume of syndicated loans, high-yield bonds, and direct-lending markets.

Looking ahead, KKR expects ABF to exceed $9 trillion by 2029, a projection that reflects the sector’s rising prominence inside the broader private-credit ecosystem. While direct lending powered much of the industry’s momentum over the last decade, investors are increasingly drawn to ABF for its blend of attractive yields, portfolio diversification, and vast opportunity set.

Supporters often frame asset-backed finance as a safer alternative to cash-flow-based lending because the loans are anchored to identifiable, tangible assets. After the global financial crisis, many banks scaled back participation in this space, creating room for private lenders to step in aggressively. These firms typically build diversified loan pools that may include receivables, consumer-credit portfolios, aircraft, commercial facilities, or even intellectual-property royalty streams. The strategy is designed to spread exposure and provide greater stability.

Yet the rapid inflow of capital has raised concerns about slipping underwriting standards. As investors rush toward the sector’s high yields, borrowers have increasingly begun pledging unconventional assets as collateral. Some analysts warn that this trend, along with lighter due-diligence practices in parts of the market, could introduce new vulnerabilities.

The collapse of First Brands provides a vivid example of these risks. The automotive-parts manufacturer relied on customer receivables to secure its loans. Court documents and creditor disclosures suggest that the company may have pledged the same receivables pool to several lenders, a scenario that could result in steep losses if confirmed.

A handful of private-credit firms, including Apollo, spotted irregularities early and positioned themselves defensively before the bankruptcy. But others did not identify the inconsistencies quickly enough to protect their portfolios.

Donald Clarke, president of Asset Based Lending Consultants, stressed that ABF demands a particularly rigorous form of due diligence. Lenders must evaluate not only a borrower’s financial condition but also the nature, quality, and reliability of the assets being pledged. Without that level of analysis, he cautions, risks can escalate rapidly.

Clarke believes the First Brands case demonstrates the consequences of deploying capital too quickly in a fast-moving market. As ABF continues expanding and billions more flow into private-credit strategies, he expects similar challenges to emerge—particularly if overall credit conditions weaken.

He argues that the industry’s brisk growth must be matched with disciplined oversight. The pressure to move capital swiftly may be strong, but failing to verify collateral structures or deeply analyze pledged assets can result in significant losses.

As Clarke notes, periods of abundant capital often coincide with heightened risks. Without careful governance and meticulous assessment, the same dynamics fueling the rise of asset-backed finance could also amplify the impact of future shocks across the private-credit landscape.