Private Credit + Securitized Credit = Holistic Asset-Based Finance Allocation

By: Abhi Kane, 400 Capital Management LLC

Private credit markets have grown substantially post-GFC, with Moody's projecting AUM to exceed $3 trillion by 2028. The securitized credit markets have similarly rebounded, reaching $3 trillion in 2025. While often treated as separate allocations by investors, this article highlights the strategic benefits of a unified approach. A manager with investment expertise across both markets can deliver a comprehensive Asset-Based Finance solution, enhancing manager alpha, increasing diversification and portfolio efficiency.

This is an excerpt from NCPERS Fall 2025 issue of PERSist.

Allocators often treat Private Credit (PC) and Securitized Credit (SC) as separate allocations within fixed income portfolios, however, there is a compelling argument for combining them into a unified allocation. The structural and economic linkages between private and securitized credit create opportunities for enhanced diversification, risk-adjusted returns, and capital efficiency. A manager with deep expertise across both domains is uniquely positioned to deliver a more holistic ABF solution: one that integrates origination, structuring, and active credit selection across public and private markets. A unified approach to PC and SC can unlock diversification and efficiency, often missed in siloed allocations.

What do Private Credit Managers offer to Allocators?

Attractive Risk-adjusted Returns 

• Portfolio managers can construct a package of diversified loans with enhanced credit spreads due to liquidity and complexity premiums.
• Direct loans are typically held at amortized cost rather than marked to market daily, which offers low volatility and reduces the impact of technical market dislocations on portfolio valuations.
  

Customization & Control 

• Portfolio managers can negotiate terms, covenants and structures directly with the borrower. This requires superior sourcing expertise, combined with the ability to structure deals.
• Greater transparency and alignment with borrower incentives requires a deep relationship with the borrower, and a thorough understanding of the borrower's needs.
• Enhanced probability of recovery in case of a workout situation.

Access to a Rapidly Growing Asset Class

• The retreat of banks from middle-market lending has opened a large, scalable opportunity.
• Opportunity set continues to expand beyond middle market loans into real estate, infrastructure, and specialty finance. 

What do Securitized Credit Managers offer to Allocators? 

Attractive Risk-adjusted Returns  

• Portfolio managers can construct a diversified portfolio with enhanced credit spreads with tens of thousands of CUSIPs to choose from, and a menu that includes RMBS, CMBS, ABS, and CLO securities.
• Demonstrated ability to produce enhanced credit spreads due to liquidity and complexity premiums. 

Manager Skill Alpha

• Several managers have demonstrated that active management and origination capabilities can generate idiosyncratic alpha in the SC markets.
• Strong managers have and continue to navigate complex capital structures and distressed opportunities. 

Robust Securitized Structures post-GFC

• Strong regulatory oversight with changes such as risk retention requirements, enhanced lending standards, and greater scrutiny from rating agencies has resulted in issuance of robust structures with strong underlying collateral and enhanced downside protection.
• That said, legacy securities offer a strong source of alpha for discerning managers who are willing to roll up their sleeves and look under the hood. 

Strong Relationships with Sell-side 

• SC managers often maintain close relationships with capital markets teams at major banks, providing access to favorable financing terms, negotiated repo facilities, differentiated deal flow and real-time insights into broader loan market dynamics, advantages that direct lending managers may not typically enjoy.

How can a manager with PC + SC expertise deliver a more holistic ABF solution? 

In addition to the benefits offered by siloed managers, such as diversification and attractive risk-adjusted returns, a manager with deep expertise across both PC and SC is uniquely positioned to deliver a more holistic ABF solution. 

Enhanced Opportunity Set
Managers with expertise across both sectors face a rich opportunity set, ranging from credit solutions in primary originations to liquidity solutions in the secondary markets.

• Managers can offer private, direct lending focused on niche strategies, underbanked sectors and special situation lending.
• Managers can leverage deep structuring expertise to offer credit solutions to banks or other credit originators seeking to transfer credit risk on newly originated or seasoned financial assets.
• Managers can acquire dislocated securities and loans in markets lacking secondary liquidity.

Higher Potential Returns with Lower Volatility

• Enhanced credit spreads due to liquidity and complexity premiums.
• While SC portfolios are impacted by bouts of technical market dislocations, the addition of PC lowers the volatility of the overall portfolio.

Manager Skill Alpha

• By combining teams that do bottom-up loan level analysis with strong top-down structuring expertise of securitized credit teams, a manager can build a robust portfolio across market cycles.
• Access to capital markets and efficient financing can significantly enhance returns.
• Opportunistic trades in dislocated markets can significantly contribute to returns.
• Managers can significantly reduce cash drag, especially in evergreen vehicles.

_{Disclosures: Private and securitized credit markets and underlying instruments inherently present substantial risk of loss and a higher risk than other investments strategies. You should consider these risks with the understanding that the strategy may not be successful and work in all market conditions.}

_{This material is intended to provide only general information and broad market commentary. Views and opinions expressed herein are as of the date set forth above and may change based on market and other conditions. The material is intended for the person to whom it has been delivered and may not be reproduced or distributed. The material is for discussion purposes only and is not intended as a solicitation to buy or sell any securities or other financial instrument or to provide any investment, legal or tax advice. There is no guarantee of the timeliness, sequence, accuracy or completeness of information included. This material may include forward-looking statements which reflect current views, involve risks and uncertainties. Past performance should not be taken as an indication or guarantee of future results and no representation, express or implied, is made regarding future performance.}

_{400 Capital Management LLC is an investment adviser registered with the U.S. Securities and Exchange Commission.}

Bio: Abhi Kane joined 400 Capital Management LLC in May 2025 and currently serves as Managing Director, Alternative Investment Strategist, after holding the same title at Angel Oak Capital Advisors, LLC from October 2020 to April 2025.  Prior to these roles, Abhi spent nearly a decade at SkyBridge Capital as Managing Director and Head of Investment Research.  Earlier experience includes serving as Vice President and Investment Analyst at Citigroup Alternative Investments, contributing to hedge fund allocations, and founding Kane Consulting, Inc., a technology consulting firm focused on financial software systems.  Abhi Kane holds an MBA in Finance/Management from NYU Stern School of Business and a bachelor's degree in computer engineering from Pune Institute of Computer Technology.