From Banks to Royalties: How (KKR) Is Reshaping Asset-Backed Lending

KKR (KKR) has raised $6.5 billion to fuel asset-backed financing, securing $5.6 billion for its KKR Asset-Based Finance Partners II fund and $1 billion from separate accounts focused on collateralized loans. The move underscores a growing shift toward ABF as borrowers seek credit alternatives beyond traditional bank lending amid stricter regulation.

Asset-backed financing—loans secured by mortgages, royalties or receivables with predictable cash flows—allows underwriters to price risk on collateral rather than credit profiles alone. Since launching its ABF platform in 2016, KKR has amassed over $74 billion in AUM, tapping a market that stood at $6 trillion and is forecast to swell past $9 trillion by 2029. The latest fund drew commitments from a diverse investor base including pensions, sovereign wealth funds, insurers, asset managers and family offices.

• ABF growth accelerates as banks retreat from riskier lending
• Collateral-based credit offers yield stability amid volatile markets
• Institutional demand surges for differentiated private-credit strategies

• KKR’s ABF fund and separate accounts raised a combined $6.5 billion
• Fund targets loans backed by mortgages, royalties and receivables
• Platform broadens KKR’s private credit footprint in a regulated landscape

• Deployment will likely focus on energy royalties, insurance reserves and specialty receivables
• Competitive pressures may spur similar launches by rival asset managers
• Underwriting discipline will be key as yield spreads compress

• KKR’s $6.5 billion raise for asset-backed financing (ABF) comes at a pivotal moment: as traditional banks curb lending due to regulatory pressure, KKR fills a credit gap with scalable, collateral-based solutions, giving borrowers access to capital previously out of reach.
• Asset-backed structures (mortgages, royalties, receivables) diversify risk and deliver more predictable cash flows, offering investors yield stability and a true portfolio diversifier versus classic corporate credit, especially in today’s volatile and rate-sensitive market.
• Institutional demand is robust—with pensions, sovereign wealth funds, and insurers among backers—showing strong conviction that ABF platforms can deliver attractive, risk-adjusted, double-digit net returns in an environment where traditional fixed income is compressed.
• The size and diversity of KKR’s capital pool position the ABF platform as a go-to partner of scale, able to underwrite large, complex deals (energy royalties, insurance reserves, specialty receivables) and support a broader range of counterparties as the private debt market expands.
• By deepening its private credit footprint, KKR sets a new fundraising benchmark, making it a standard-setter in the space and likely to attract follow-on capital and new institutional partners in future vintages as performance is demonstrated.
• As competition heats up, early movers like KKR can shape underwriting standards and best practices, preserving discipline and helping institutionalize the next phase of non-bank lending.

• The rapid growth of ABF and new fund launches may create crowding and compress yield spreads, especially if rival asset managers race in with similar products—potentially reducing net returns to investors as deployment scales up.
• Asset-backed lending is not immune to risk: if underlying collateral values deteriorate or if cash flows linked to royalties or receivables falter (energy price shocks, macro downturns, sector disruption), loss rates could spike and stress test the strategy’s assumptions.
• Success depends heavily on KKR’s underwriting discipline and risk management; loosening standards in a bid to deploy capital quickly could backfire during an economic slowdown or “risk-off” cycle, leading to underperformance or capital impairment.
• Rising regulatory scrutiny around private credit and shadow banking could alter the economics of ABF vehicles or introduce unexpected compliance costs, slowing growth and cooling industry momentum.
• The market’s forecasted growth (from $6 trillion to $9 trillion by 2029) could prove optimistic if macro headwinds persist, banks re-enter the market, or investor appetite wanes—leaving platforms overcapitalized and struggling to achieve targeted returns.
• Historically, niche and opaque ABS markets have attracted mispricing and hidden leverage risks; a “growth at all costs” environment could set the stage for future blowups or headline shocks, tarnishing the space and deterring long-term institutional capital.

By marrying underwriting expertise with scale, KKR positions its ABF vehicle as a bridge between conventional bank loans and higher‑return private‑credit deals, aiming for double‑digit net returns in a low‑rate environment. Borrowers gain access to bespoke capital solutions, while investors secure a diversifier against traditional fixed-income assets.

KKR’s landmark raise could set a fundraising barometer for the asset-backed financing space. As the market matures, the fund’s performance will test whether ABF can sustain robust growth and attractive yields in the face of mounting competition and evolving regulatory frameworks.