Issue No. 24

To me, “short duration” is synonymous with “resilience”. This is probably #1 on the list of reasons why I love our asset class of specialty finance. These assets mature quickly, shielding you from the risks of long-dated bets in uncertain or volatile markets. When rates climb or defaults tick up, short maturities let you adapt quickly. You can redeploy capital at “new world” pricing, tighten terms if needed, or even pause new investing. For example, in late February / early March of 2020, we made the decision to stop investing and we were able to build up a 40% cash position by May. This was only possible because of the short duration of the underlying assets we owned. We re-deployed the cash in the back half of 2020 and by the end of the year over 60% of our investments were deployed into post COVID deals.

In times of uncertainty, the optionality that short duration assets give you is highly valuable.

- Jillian

Ready or not, here comes the student debt reporting.Source: WSJ

CEO's and investors aren't the only nervous nellies. 25% more than 2008!Source: Apollo

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In private credit, even the definitions require some scrutiny. Case in point: asset-based lending vs. asset-backed lending. I’ve been doing this a long time and only recently learned the difference myself. Credit to one of our team members who caught me blending the two. But once you see the distinction, it’s obvious.

Asset-based lending refers to loans secured by operating business assets such as receivables, inventory, or equipment. The borrower uses it as working capital, the collateral stays on the balance sheet, and loan availability adjusts based on a monitored borrowing base.

Asset-backed lending, in contrast, refers to term loans secured by financial assets such as leases, consumer receivables, royalties, or merchant cash advances. These assets are typically housed in a special purpose vehicle and structured as a static or revolving pool. Underwriting focuses on expected cash flows rather than the borrower’s overall financial profile.

From there, it’s a short jump to lender finance, a more specific form of asset-backed lending. It involves providing capital to non-bank lenders, secured by their own portfolios. The underwriting goes deeper, with attention to the lender’s credit policy, servicing capability, and performance history.

Specialty finance is broader. It is not defined by structure, but by focus. It includes litigation, royalties, insurance claims, and other non-traditional cash flows. What matters is predictability, not the form of the collateral.

At Pier, we operate in the specialty finance space, make asset-backed loans, and often focus on lender finance opportunities. Understanding the differences helps us underwrite more precisely, structure more effectively, and explain what we do with fewer blank stares and more nodding.

- Conor

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