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After the early steps taken to lower rates from the Fed and historically low spreads in many sectors of public credit, traditional fixed income yields are near the lows of the last few years, prompting advisers to turn to private credit as they look for more durable income solutions.
Asset-based and real estate lending, in particular, offer a timely entry point, providing elevated yields, short to intermediate durations and strong collateral backing.
Over the next 12 to 24 months, these strategies offer a window of opportunity to access income streams supported by structural protections while helping to fill financing gaps left by banks and other traditional lenders.
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For income-oriented portfolios, they offer a compelling way to add both resilience and long-term value.
A tangible and timely opportunity
Real estate bridge lending is one area where the opportunity is both tangible and timely. For example, a first-lien loan on an industrial property in a key southeastern U.S. market was recently secured by a 10-acre site with shipping and logistics infrastructure, generating strong in-place cash flow and supported by long-term demand.
The loan carried a conservative loan-to-value ratio and was structured with a fixed-rate coupon and regular interest payments over a short duration.
These types of short-term, income-generating loans, typically backed by income-producing assets, can offer attractive yields, downside protection and the flexibility to recycle capital quickly.
For high-net-worth or income-focused clients, they offer a way to diversify and enhance portfolio durability.
Downside protection and attractive yields
Asset-based lending (ABL) presents a similarly compelling case. Demand from small and midsize businesses remains strong, especially for working capital, equipment purchases and inventory financing.
These loans are typically secured by tangible assets, offering meaningful downside protection and attractive yields.
The ABL market spans a wide range of sectors, including examples such as transportation, equipment leasing and structured risk transfers (SRTs), just to name a few — each with distinct risk-return profiles.
Transactions in these spaces can offer meaningful diversification across borrowers and sectors, which is especially attractive for clients seeking steady income with strong risk reward.
Together, these areas highlight a key point: In private credit, return is driven not only by yield, but by structure.
Both ABL and real estate lending are backed by tangible assets and offer protections that can help mitigate downside risk.
For clients who are wary of duration risk in traditional fixed income or are looking to reduce exposure to public market volatility, these strategies provide targeted, income-producing alternatives.
A rich set of opportunities
This is especially relevant today. Even as interest rates begin to ease, tighter credit conditions and stricter bank capital requirements have limited the flow of traditional financing, including in sectors vital to economic growth like real estate and small business finance.
The securitization market also remains constrained, making it harder for certain borrowers to access capital.
As a result, private credit managers with origination capabilities and structuring expertise are stepping into the gap, creating a rich set of opportunities for investors who are prepared to act.
For advisers, the key is to look beyond traditional corporate direct lending and consider the full spectrum of private credit.
That means identifying managers with access to differentiated deal flow and the ability to source and structure investments in sectors where capital is both scarce and valuable.
When grounded in discipline and strong underwriting, asset-based and real estate lending, in particular, can help advisers construct income portfolios that are more resilient to today’s risks and more responsive to tomorrow’s opportunities.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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