Asset-Based Lending hedge funds

Is anyone here familiar with asset-based lending in a hedge fund context? Any good articles or guides to familiarize myself with these concepts, or is ABL pretty much the same whether it is being done from a commercial standpoint (bank) or a hedge fund?

I think there is alot more flexibility in ABL funds. They will likely address markets or industries where banks cannot or will not lend. They can be pretty risky despite the pretty sharpe ratios…meaning 1 bad deal and it’s over. They will have a tougher time allocating large sums, so they will likely be pretty small. (<600MM) Not surprisingly the quality of their internal controls/ops have a direct relationship with their size. Internal risk could be a greater risk in this kind of fund vs. others in terms of normal operations (not related to fraudulent activity, etc.) Compared to ABL in banks, i don’t have much basis for comparison. I’d assume the banks have less restructuring, more DD, and much more stringent deal requirements. From what i’ve seen, funds don’t step into the realm of securitization…which i’m sure banks do. Although there is one HF that may, as they are sig. larger than others i’ve seen in this area. Not sure if this is helpful or not…do you have any questions in particular?

Thanks for the information. I have an interview at an ABL fund for an undergrad internship, so I am trying to gain some background knowledge in an area I do not have a lot of experience with. I understand the basic details of ABL, factoring, purchase order financing, revolving loc, dilution, etc… but I am trying to prepare myself as much as possible as I have no idea what they will ask me in the interview :wink: The information you provided is helpful - do you think this type of fund is a good one to learn in?

If you know those…you are in good shape. Great place to learn if you want to do commercial finance. The important thing will be to assess the quality of the firm…but at an undergrad. internship level the actual duties may be more important at this point. What firm if you don’t mind my asking? -my 2c

Give me your email and I will fill you in.


I did interview for an ABL position at a large fund. They did several things, including payday type loans, legal settlements, lottery structuring…etc. It was more of an esoteric group within the fund since they were securitization based. Banks have the lions share of ABL since they typically use it for warehouse to term, warehousing for term economics. There’s really three stratifications. 1. Warehouse to term, which can be bifurcated into mature companies and not mature companies. Mature companies use ABL for short-term bridge funding (6-12 months). Non mature companies will use ABL for longer periods until they reach “critical mass”, but they aren’t regular term issuers. 2. Warehouse. This is for companies who have assets that might not be term friendly (trade receivables), or are relatively “new” and wouldn’t get very good term securitization issuance. Most companies with term securitization friendly assets fall into this area before they hit #1. They usually depend on small warehouses to fund the company. 3. Small ABL. These are usually warehouses with smaller balances for small or middle market companies, or even larger companies with esoteric assets. Many times these assets could be term friendly but aren’t big enough to reach critical mass (such as smaller pools of wireless tower leases), or are too odd (payday loans, lottery structures…etc). #3 is a very small part of warehouse/ABL lending. They’re usually more difficult to manage (since the assets or the servicer/sellers are funky), and are a bit more risky sometimes, requiring more structuring. Thus, hedge funds can pick this kind of fruit, which is usually too small of bite-sizes for banks to concern themselves with (since most banks are looking for warehouse to term). However, once you tie in actual awesome spreads on those deals, plus good economics in other areas (IR swaps are huge money makers there), you can make a pretty good return. Obviously, since you’re securitized, you’re also protected provided you’ve been smart in your legal and asset structuring. Hedge funds must be loving the current environment. Only the strongest servicer/sellers can do term deals at this point, which means even regular bank warehouse lines are backing up. Since banks are relatively capital starved right now they won’t take on esoteric assets or smaller servicer/seller lines. Thus, those companies will seek ABL lines through hedge funds and offer great returns for the liquidity. Funky asset prices are insane right now.

Thanks for the insight spierce - it is appreciated.