Article/Intelligence
Trump Administration’s Tariff Policies Make Asset-Backed Finance Valuations Challenging for Private Credit Investors
Reporting: Yuheng Zhan
The uncertain economic environment driven by the Trump administration has complicated asset-based finance valuations, said senior leadership at investment management firms during the “Super Return” conference held in Miami today, Monday, March 17.
Asset-backed financing, or ABF, a subset of private credit, helps diversify away from idiosyncratic corporate credit risk, the entire panel noted. The area has gained traction in the private credit market primarily because private asset managers are seeking new ways to allocate and deploy capital at the same time that traditional banks, constrained by increased capital requirements, have pulled back from the product.
For example, a senior executive in consumer ABS and CMBS at a global investment firm said that the section 323 tariffs, which became effective March 12, would affect securitized assets, such as cars, in light of the reinstated 25% tariff on steel and increased 25% tariff on aluminum imports.
“Car prices will increase by about $1,000 to $1,500 per vehicle,” the executive said. “And that will be passed through to the consumer, potentially changing the valuation,” adding that they have seen valuations move 20% to 30% in certain cases, per annum.
“Instead of being methodical and deliberate in execution, it feels a bit haphazard,” the executive said. They added that long-term investors in ABF notes want a certain level of predictability in cash flow and asset coverage.
Despite some macro headwinds, the panel also highlighted that the ABF sector has presented many interesting opportunities, offering higher yields due to its inherent complexity.
The executive in consumer ABS and CMBS at a global investment firm noted that the return profile for asset-backed financing ranges from 5% to 20%, depending on attachment points. In today’s market, investment-grade opportunities requiring scale typically yield 6% to 9% on an unlevered basis. Meanwhile, high-yield and equity positions can offer returns closer to 15%, with certain higher-beta sectors, such as aviation, potentially reaching up to 20%.
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