Asset-Based Finance Is Pulling Ahead of Direct Lending
Direct lending's share of new LP allocations has dropped from 58% to 44% in two years. Insurance balance sheets are steering the money toward asset-based finance instead.
NEW YORK, September 1, 2026. Direct lending's share of new LP allocations fell from 58% in 2023 to 44% in 2025. That's according to WithIntelligence's Private Credit Outlook 2026 survey. Asset-based finance is picking up the difference. 26% of investors surveyed plan to raise their ABF exposure next year. Only 6% said the same about mid and upper-middle-market direct lending.
The reason shows up in pricing, not only sentiment. 70% of investors in the same survey cited spread and term compression in direct lending. They called it a top concern. Years of capital chasing the same sponsor-backed loans have squeezed the returns. Morgan Stanley Investment Management's 2026 outlook sees first-lien direct-lending yields troughing near 8.0-8.5% this year. Asset-based finance is backed by pools of receivables, equipment or consumer loans instead of a single corporate borrower. It hasn't been bid down the same way.
The platforms are already built. KKR closed Asset-Based Finance Partners II at $6.5B in 2025, the second-largest ABF fund raised to date. KKR Credit now runs roughly $250B across leveraged credit, private credit and ABF combined. Apollo's Atlas SP Partners was built from its 2023 purchase of Credit Suisse's Securitized Products Group. It has since partnered with BNP Paribas on a $5B initial commitment to investment-grade ABF.
Insurance balance sheets are what's funding the shift. Apollo deploys Athene's roughly $285B of invested assets heavily into ABF and private credit. KKR bought a majority stake in Global Atlantic for $4.7B in 2021. It took full ownership in January 2024. It's now directing that portfolio into privately originated credit and ABF. An annuity book with decades-long liabilities is a natural match for asset-based structures. It doesn't need the daily liquidity a bank balance sheet does.
None of this is happening without scrutiny. CNBC reported in December 2025 that ABF's rapid growth is drawing new regulatory attention. It's the same kind of scrutiny direct lending faced years ago as it scaled past bank balance sheets. Estimates of the total ABF market swing from $5.5T to $9T. It depends on whether public asset-backed securities get counted alongside the private deals. The LP rotation is real and it's measurable. How big the market actually is remains an open question. Nobody selling into it wants to pin it down too precisely.