The Growth of Private Credit and Fasanara's Asset-Based Finance Advantage

1. Intro: The Private Credit Boom

Private credit has experienced explosive growth over the past decade, with global assets under management (AuM) now exceeding $2.1 trillion, supported by annual growth rates of over 20% in key markets. This expansion is driven by the disintermediation of traditional banks, which are increasingly constrained by regulatory and capital requirements. Alternative lenders, like Fasanara Capital, have stepped in to bridge this gap, offering innovative and flexible financing solutions for borrowers underserved by conventional financial institutions.

Source: IMF The Rise and Risks of Private Credit,” April 16, 2024

Despite its growth, much of the private credit landscape remains heavily intertwined with the private equity (PE) ecosystem, with the IMF’s Global Financial Stability Report warning approximately 70% of private credit assets linked to PE-backed borrowers. This reliance on PE has introduced challenges, including concentrated risks, higher borrowing costs, and rising financial stress in a high-interest-rate environment. Furthermore, direct lending strategies are becoming increasingly crowded, exposing investors to eroding underwriting standards and heightened competitive pressures.

At Fasanara Capital, we are one of the leading firms in this transformative shift in private credit with our tech-enabled Asset-Based Finance (ABF) strategy. This approach represents a fundamental evolution, leveraging digital infrastructure and proprietary technology to create highly granular, uncorrelated portfolios. By channelling capital efficiently into a $20 – 40 trillion addressable market, Fasanara delivers stable, high-yielding returns of 9-12% without relying on leverage, making it a standout alternative to traditional PE-driven lending models. ABF offers a perpetually proliferating pool of underlying collateral -spanning royalties, supply chain finance, asset leasing and loans, encompassing real assets, consumer and speciality finance:

Source: S&P Global (November 2024)

We view “finance rails digitisation” as not just an operational enhancement but a structural innovation. As legacy private credit strategies face growing headwinds, Fasanara’s ABF strategies unlock significant value by efficiently mobilising capital into underbanked markets, particularly SMEs, while offering institutional investors a resilient and uncorrelated income stream.

2. Synergies Driving Private Credit Growth

The growth of private credit has been largely driven by its integration with the PE ecosystem. This symbiotic relationship has allowed large private credit managers to leverage PE synergies such as shared networks, aligned deal origination, and established fundraising capabilities. Approximately 70% of private credit AuM’s are linked to PE-sponsored borrowers, creating a concentrated exposure to corporate credit risk:

While this model has driven significant scale, it has introduced inherent vulnerabilities:

• Concentration Risk: The reliance on direct lending to PE-backed companies limits diversification and exposes private credit portfolios to the performance of leveraged, often sector-specific borrowers.
• Market Pressures: Rising interest rates since 2022 have amplified borrowing costs for PE-backed companies, reducing their interest coverage ratios and increasing the risk of defaults.
• Operational Challenges: Increased competition for deals and declining underwriting standards have eroded the structural integrity of traditional direct lending.

The Shift Beyond PE Fasanara Capital offers an innovative alternative to these traditional models by breaking the reliance on PE ecosystems. Our ABF strategy addresses these vulnerabilities with a fundamentally different approach:

1. Diversification: o Fasanara’s ABF strategy is built on portfolios comprising millions of granular positions across diverse sectors and geographies, reducing reliance on concentrated corporate credit exposure. o These portfolios are self-liquidating and short-duration, enhancing flexibility and risk mitigation.

2. Digitisation: o Fasanara integrates with 141 fintech platforms across 60+ countries , digitising the credit deployment process to ensure seamless origination, underwriting, and servicing of receivables (Fasanara, 2024). o AI-powered technology and APIs optimise underwriting precision and enable real-time portfolio management, creating a scalable, defensible operational moat.

3. Due Diligence: o Fasanara incorporates robust risk management and credit enhancements, including over-collateralisation, first-loss provisions, and credit insurance, offering superior downside protection. o These measures have the aim of ensuring resilience and consistent performance, even during periods of market volatility.

Creating a New Standard in Private Credit Fasanara’s model signals a shift from traditional PE synergies to technology-led innovation and market diversification. While PE-aligned private credit funds remain constrained by concentrated risks and operational inefficiencies, ABF unlocks a broader opportunity set by efficiently deploying capital into underbanked markets, such as SMEs and consumer finance. This transition also aligns with key global macro trends:

• Regulatory constraints on banks have created a $1.5 trillion funding gap for SMEs in Europe alone, leaving a significant market underserved (Investment Innovation Institute, 2024).
• Institutional investors increasingly demand strategies that deliver stable, uncorrelated returns, a hallmark of Fasanara’s ABF strategy.

3. The Case for ABF ABF has positioned itself as one of the vital components in the next phase of private credit growth. ABF is emerging as a transformative force within private credit, offering a compelling alternative to traditional direct lending. At Fasanara, we see ABF as a structural evolution that addresses key inefficiencies in private credit by leveraging diversification, structural resilience, and technology-driven scalability.

Source: publicly available industry publications, as of October 2024.

The ABF Opportunity: o The ABF market represents an estimated $20 – 40 trillion opportunity, over 10 times larger than the direct lending market, providing significant room for growth and capital deployment (S&P Global, 2024). o ABF portfolios aim to deliver stable, uncorrelated returns of 9-12%, with minimal volatility and no reliance on leverage. o Investments are spread across millions of granular positions globally, reducing exposure to macroeconomic shocks and sector-specific downturns. o Credit enhancement tools such as first-loss provisions, over-collateralisation, and credit insurance ensure superior downside protection, safeguarding returns even in periods of economic stress. Fasanara Capital’s tech-enabled ABF strategy exemplifies this shift, aiming to create a new standard for delivering stable , uncorrelated returns in a rapidly changing financial ecosystem.

ABF vs. Traditional Direct Lending

The limitations of direct lending, particularly its reliance on concentrated PE ecosystems, highlight the advantages of ABF:

1. Diversification:

o Traditional direct lending focuses heavily on leveraged corporate credit tied to a limited number of PE-backed borrowers. By contrast, Fasanara’s ABF portfolios span SMEs, trade receivables, and digital invoices, creating a far more granular and resilient portfolio.

2. Short Duration and Liquidity:

o Direct loans typically have maturities of 3-7 years, exposing investors to prolonged credit risks. Fasanara’s ABF portfolios, with an average loan maturity of 90 days, are self-liquidating, allowing for greater liquidity and dynamic portfolio rebalancing

3. Structural Protections:

o ABF incorporates over-collateralisation and first-loss protections, ensuring enhanced risk mitigation and consistent performance even during market turbulence. We believe that these features are notably absent in most direct lending strategies.

4. Why Now? Tailwinds for ABF ABF is at the same inflection point that direct lending reached 5-8 years ago, as investors increasingly recognise its potential to deliver scalable, resilient returns. Fasanara’s view is that ABF is uniquely positioned to thrive in today’s financial environment, supported by strong macroeconomic and market trends that amplify its relevance. As traditional private credit faces increasing challenges, ABF emerges as the timely, scalable solution for investors seeking stability, diversification, and innovation. The retreat of traditional banks from risk-weighted lending activities, driven by stricter post-Global Financial Crisis (GFC) regulations, has created significant funding gaps. In Europe alone, SMEs face a $1.5 trillion funding shortfall as banks, constrained by capital requirements, reduce their exposure to smaller borrowers (Investment Innovation Institute, 2024). This structural dislocation has created a massive opportunity for ABF by providing direct liquidity to underbanked SMEs, leveraging technology to assess risk and deploy capital efficiently.

In a volatile market environment characterised by economic uncertainty, we see that investors are increasingly seeking uncorrelated, resilient income streams. Traditional private credit strategies are heavily tied to PE ecosystems and broader corporate credit cycles, amplifying their vulnerability to macroeconomic shocks. ABF, by contrast, offers portfolios built on millions of diversified, self-liquidating loans, which are uncorrelated with public and private equity markets. Institutional allocations to ABF are growing due to its yield premium and diversification benefits.

5. Conclusion: The Expanding Market Opportunity The rapid growth of private credit has created an unprecedented opportunity for innovative strategies like ABF. At Fasanara, we believe ABF represents the future of private credit, uniquely addressing structural inefficiencies in traditional models. With an addressable market of $20 – 40 trillion , ABF offers (S&P Global, 2024):

• Short-duration assets with enhanced liquidity.
• Granular, low-volatility portfolios resilient to economic shocks.
• Robust structural protections ensuring consistent returns.

The Fasanara Advantage Fasanara has anticipated and capitalised on these tailwinds through:

• Digitised Finance Rails: Building an operational and technology moat that ensures scalability, efficiency, and adaptability.
• Resilient Returns: Delivering consistent, low-volatility income streams backed by granular diversification and structural protections.
• Leadership in ABF: As a first mover, Fasanara has defined the ABF space, establishing itself as the leader in the next generation of private credit.

At Fasanara, we are proud to be at the forefront of this transformation. Our tech-enabled ABF strategy sets a new standard for private credit through a revolutionary approach to credit deployment. With our innovative platform, proven track record and a commitment to reshaping private credit, we invite institutional investors to join us in capitalising on the immense opportunities ABF presents.

Disclaimer

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell, or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investors or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with their financial professionals. The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance does not predict or guarantee future results. Investing involves risk; principal loss is possible. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Important information on risk

Investing involves risk. The value of any investment and the income from such can go down as well as up, and you may not get back the full amount invested. Past performance is not a guarantee of future returns. Changes in the rate of exchange may also cause the value of overseas investments to go up or down. This information represents the views of Fasanara Capital Ltd and its investment specialists. It is not intended to be a forecast of future events and/or guarantee of any future result. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. There is no assurance that an investment will provide positive performance over any period of time. This information does not constitute investment research as defined under MiFID.