While the role of asset-based lending in an investment portfolio is as a core allocation within the private credit sleeve, it isn’t meant to be opportunistic, according to Alex Preobrazenski, managing director and underwriting and portfolio manager at Cortland Credit, during a session at the Canadian Investment Review’s 2025 Alternative Investment Conference.
“You’re not seeking double-digit returns in the type of asset-based lending that Cortland is pursuing as it focuses on principal protection through collateralization with stable income.”
Speaking broadly about the private credit market, he noted the ongoing debate about its size, with estimates ranging from $1.5 trillion up to $4 trillion. “While not everyone agrees on the number, the general consensus is clear: the entire asset class is going to grow for the foreseeable future. It isn’t going to be just direct lending, it will include asset-based strategies and more niche structures that managers are putting together.”
In the context of direct lending, Preobrazenski highlighted some drivers and pressures that influence activity, including the ebb and flow of mergers and acquisitions, which drives how much private credit managers can deploy into those structures; policy shifts, which affect risk appetites; and general credit market openness.
Looking specifically at asset-based lending, he said it’s almost always structured as first lien, giving it top repayment priority in a borrower’s capital structure. “As a result, among all lending products, recoveries are the highest in asset-based revolving credit.”
Asset-based lending is largely uncorrelated to direct lending, he added, due to the collateral, the way the loans are sourced and how positions are structured. In addition, it offers high levels of natural liquidity based on the structure and monitoring that’s required to ensure the lender’s principal is protected.
In terms of risk monitoring, asset-based lending has a very hands-on servicing model that’s done internally, noted Preobrazenski. It includes a high-touch relationship with the borrower’s management, he added, as well as weekly or semi-weekly reviews of the collateral base, reconciling all accounts receivable that liquidate compared to borrower cash repayments.
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“This monitoring model is not as scalable for direct lenders because when you compare what is required with ABL to monthly monitoring or quarterly monitoring of a term loan, it’s much more resource intensive. You can’t just find and execute larger asset-based lending transactions with the same level of structural protection as in the lower middle market.”
Among the benefits of asset-based lending, Preobrazenski highlighted the potential for less risk in times of stress and uncertainty, as well as lower loss given defaults in those periods of stress. “And again, the focus on lower middle market and non-sponsored borrowers preserves that document integrity and structural integrity than elsewhere.
“All of this is supposed to add up to an uncorrelated return set within a private credit sleeve. Again, generally it isn’t opportunistic. You’re not typically going to experience double-digit unlevered net yields, but it’s a powerful risk management tool within your private credit sleeve.”
Read more coverage of the 2025 Alternative Investment Conference.