ABF Overtakes Direct Lending:
What's Driving the Shift

Key Takeaways

• Asset-based finance (ABF) is now the most widely held private credit strategy. 66% of firms are active in it, ahead of fund finance (60%) and corporate direct lending (56%), according to Oxane's Compass 2026 survey of 380+ senior credit professionals.
• ABF also carries the strongest intent to grow. 57% of active firms plan to deploy more capital into it, versus 53% for direct lending.
• The shift is structural, not cyclical. Direct lending has become crowded and spread compressed, banks have pulled back from parts of asset-based lending, and ABF's link to contractual cash flows gives it room that direct lending no longer has.
• ABF's growth is uneven by geography and asset type, which raises the operational bar for firms trying to scale across jurisdictions.

Private credit has spent the past decade being told largely through one story: direct lending. Corporate loans, sponsor-backed deals, unitranche structures. That story is still true, but it is no longer the whole picture.

Oxane's Compass 2026 survey, a credit-only study of more than 380 senior professionals across North America and Europe, found that asset-based finance and specialty finance has overtaken direct lending as the most widely held strategy in private credit. Sixty-six percent of firms surveyed are active in ABF today. Fifty-six percent are active in direct lending. Fund finance sits in between at 60%.

For investors newer to the strategy, understanding asset based finance helps explain why allocations are shifting. Asset-based finance (ABF) refers to lending secured against specific assets such as receivables, inventory, equipment, royalties, consumer loans, or other contractual cash flow streams. By comparison, direct lending typically involves loans underwritten against borrower cash flow and enterprise value. As investors evaluate what is ABF versus what is direct lending, the differences in collateral protection, diversification, and return drivers have become increasingly relevant.

This matters more than a single data point suggests. ABF is not just the most widely held strategy. It also has the strongest forward intent. Fifty-seven percent of firms already active in ABF plan to deploy more capital into it over the next 12 to 18 months, ahead of direct lending at 53% and fund finance at 47%. Firms are not just holding ABF positions. They are adding to them.

The Numbers Behind the Shift

Compass 2026 was fielded between February and April 2026, across banks, private credit funds, and asset managers with a combined $4 trillion in credit assets under management. The asset-strategy breakdown was one of the clearest signals in the entire dataset:

• Asset-based / specialty finance: 66% active, 57% planning to increase deployment
• Fund finance (NAV, secondaries, capital calls): 60% active, 47% planning to increase
• Corporate direct lending: 56% active, 53% planning to increase
• Commercial real estate finance: 45% active, 40% planning to increase
• Infrastructure finance: 39% active, 46% planning to increase
• Securitized products: 33% active, 49% planning to increase
• Significant risk transfer: 25% active, 36% planning to increase

Kanav Kalia, Managing Director at Oxane Partners, put the shift in context for Alternative Credit Investor following the report's release: direct lending has become highly competitive, and investors are now looking for diversification and pockets of the market where risk-adjusted returns are still achievable. ABF fits that search well, since it is tied to underlying assets and contractual cash flows rather than enterprise value alone.

The same dynamic is pulling securitized products along with it. Only a third of firms are active in that strategy today, but almost half of those plan to increase exposure, the second-highest deployment intensity in the entire survey. ABF's rise is not an isolated allocation shift. It is dragging the rest of the asset-based and structured side of the market along with it.

Why Direct Lending Is Losing Its Edge

Direct lending's slowdown shows up clearly in how European and North American investors are talking about the strategy right now. For investors asking why is ABF overtaking direct lending, much of the answer lies in the growing challenge of finding attractive risk-adjusted returns in an increasingly crowded lending market. Coverage in Private Debt Investor's July/August 2026 issue described limited partners at a recent European summit as notably cautious on direct lending, pointing to spread compression, weaker documentation standards, and steep leverage as features of the current market. Capital solutions and structured credit were named as the strategies best placed to benefit as direct lending cools.

That caution is not about direct lending disappearing. It remains the largest single area of private credit investment by dollar volume. What has changed is the ease of finding attractive risk-adjusted returns inside it. More capital chasing a mature strategy compresses the spread available to lenders, and Compass 2026's own numbers reflect that: direct lending's deploy-more signal, at 53%, trails ABF by four points despite direct lending still being the more established strategy of the two.

These dynamics help explain why ABF overtakes direct lending in Compass 2026's participation rankings while also leading on future deployment intentions.

Why the Retreat of Banks Created Room for ABF

Part of ABF's growth is a direct consequence of banks stepping back from segments of asset-based lending they once dominated. Regional banks in particular have pulled back from specialty finance and asset-backed lending over the past several years, driven by capital requirements and risk appetite shifts following the 2023 regional banking stress. That retreat has not closed the market. It has handed the opportunity to private capital.

This lines up with a broader pattern Compass 2026 surfaced independently: banks have not exited private credit so much as re-tranched their position within it. Rather than originating and holding the full capital structure themselves, banks are increasingly funding the senior layers of deals while private credit and ABF managers take on more junior, asset-linked exposure. Far from stepping away, banks have indirectly helped fuel the growth of the ABF market by ceding origination-level activity while remaining present through senior financing.

The result is a more connected credit ecosystem rather than a simple substitution of bank capital for private capital. Banks and non-bank lenders are increasingly funding different layers of the same transaction rather than competing head-on for the same loan.

ABF Isn't One Market

Anyone underwriting ABF at scale runs into a problem quickly: the term covers wildly different assets, structures, and legal regimes depending on where the deal sits. Industry practitioners describe North American opportunities as spanning receivables, machinery, inventory, and intellectual property across construction, mining, and transportation. European opportunities tend to cluster around event-driven and time-pressured situations such as carve-outs and distress. Asia-Pacific is comparatively early in its ABL development, concentrated in Japan, Australia, and Singapore, with retail and trade finance as the more mature entry points.

The legal mechanics differ just as sharply. Realizing collateral in the UK, Germany, or the Netherlands typically takes weeks once insolvency proceedings begin. In Spain, a secured creditor can face a four-month stay before recovery even starts, which has pushed some lenders toward purchase-repurchase structures instead of traditional security interests. A single cross-border ABF facility, structured across multiple jurisdictions under one aggregated agreement, is now common enough that recent multi-country deals combining US, UK, German, and Japanese collateral pools have drawn attention precisely because they demonstrate how far the structuring has advanced.

None of this is a reason to avoid ABF. It is a reason to treat jurisdiction-specific eligibility rules, concentration limits, and reporting requirements as core underwriting infrastructure rather than an afterthought.

The Operational Reality Behind ABF's Growth

ABF does not scale the way direct lending scales. A direct lending portfolio might involve dozens or low hundreds of borrower relationships, each reporting on a predictable quarterly cycle. An ABF portfolio can involve loan tapes, receivables pools, or inventory positions refreshing daily or weekly, often across multiple obligors per facility and multiple jurisdictions per fund.

That data intensity is exactly where the operational gap tends to appear. Managing receivables pools, borrowing base calculations, eligibility criteria, and reporting across jurisdictions increasingly requires dedicated asset-based finance technology, particularly as managers scale their ABF exposure.

Oxane has worked with global investment institutions managing hundreds of ABL facilities who were standardizing data management and automating borrowing base calculations that previously ran through spreadsheets. In one such engagement, Oxane Panorama reduced turnaround time for borrowing base creation by 99%, turning what had been a multi-day manual process into a same-day one.

As ABF becomes the largest strategy in the portfolio rather than a satellite allocation, that kind of infrastructure stops being optional. Firms also need the right operational infrastructure, including asset-based finance software, to support collateral management, monitoring, and reporting at scale. Firms scaling into ABF are inheriting the collateral-tracking, eligibility-testing, and cross-border reporting complexity that comes with it, whether their operating model is ready for it or not.