BlackRock direct lending boss sees “hype” around ABF market
BlackRock’s head of global direct lending has noted “hype” around the asset-backed finance (ABF) market, saying that he sees a limited opportunity there.
ABF has been touted as the ‘new direct lending’ by some industry stakeholders, citing the appeal of security combined with double-digit returns.
The market was valued at $5.2tn (£4tn) by KKR last year and is predicted to swell to $7.7tn by 2027.
Read more: BlackRock predicts more performance dispersion in private debt
Speaking on the sidelines of BlackRock’s 2025 Outlook EMEA Media Roundtable last month, Stephan Caron told Alternative Credit Investor that there was a lot of “hype” around ABF and disagreed with predictions that it will overtake direct lending.
Looking at the European market specifically, he said “you wouldn’t touch” the consumer side of ABF.
While he acknowledged opportunities on the commercial side of ABF, such as receivables financing, he said that there is a limited size to the market.
Despite increased competition within direct lending, Caron said during the roundtable event that he is “extremely bullish” on the sector in the US and Europe, with a slight bias towards Europe as there is a greater ability to generate alpha.
He noted a “significant pick-up” in M&A activity in Europe which “will continue to fuel 2025” for direct lending.
“Returns are very, very attractive, we’re seeing double-digit returns on deals with covenants,” he said, highlighting particular opportunities in the core middle market.
BlackRock’s Investment Institute released its 2025 Global Outlook last month, which said that private markets are pivotal in supporting the world’s economic transformation.
“AI hyperscalers are getting to a quantum that is as large as the US government,” said Wei Li, global chief investment strategist at the BlackRock Investment Institute, at last month’s event.
“This is similar in magnitude to previous industrial revolutions.
“There is a greater need for private markets to step up.”
BlackRock has been on an acquisition spree this year to support its expansion into private markets, having bought infrastructure private markets investment platform Global Infrastructure Partners for $12.5bn in October. It has also agreed to buy private market data provider Preqin for an estimated $3bn.
Last month, it announced that it was acquiring credit specialist HPS Investment Partners for $12bn, creating an integrated private credit franchise with around $220bn in client assets.
“The HPS deal positions BlackRock to offer comprehensive alternative asset management portfolio services to the largest institutions in the world, catapulting it into the ranks of the top five private credit managers and significantly advancing its private-market growth goals,” said Ana Arsov, Moody’s Ratings’ global head of private credit.
