Key takeaways:
- Public ABF offers liquidity, transparency, and ratings-driven risk profiles that integrate smoothly into APRA’s prudential frameworks.
- Private ABF offers higher yields and enhanced structural protections but introduces illiquidity, valuation complexity, and heightened governance requirements.
- For Australian insurers, the effectiveness of ABF allocations depends on portfolio resilience, capital efficiency, liquidity and governance structures. Applying a disciplined APRA-aligned framework can harness the benefits of both public and private ABF while meeting stakeholder expectations.
Asset-based financing (ABF), including asset-based lending (ABL) and asset-backed securities (ABS), has become an increasingly relevant allocation for Australian insurers seeking defensive income, diversification, and capital efficiency. For APRA regulated insurers, the distinction between public and private ABF extends beyond yield and liquidity considerations. Capital treatment, valuation transparency, governance requirements and operational complexity all play a critical role in determining suitability.
We outline how these differences shape portfolio construction decisions and highlights the key considerations insurers should evaluate when incorporating ABF into their investment frameworks.
1. Asset-Based Financing Structures
Public ABF is typically accessed via asset-backed securities, where large pools of homogeneous assets are securitised and issued as tradable, rated securities. Private ABF consists of bilateral lending secured against specific asset pools, often bespoke in structure and illiquid in nature.
2. Risk and Return Characteristics
Private ABF typically offers higher yields reflecting illiquidity and complexity, while public ABS offers lower yields with greater diversification and transparency. From a regulatory perspective, incremental yield must be assessed against capital consumption and risk management burden.
3. Liquidity and Balance Sheet Resilience
Public ABS provides observable pricing and secondary market liquidity, supporting balance sheet flexibility. Private ABF is buy-and-hold and more suitable for insurers with stable liability profiles and strong liquidity buffers.
4. Capital Treatment and Efficiency
Public ABS benefits from established capital treatment and ratings-based differentiation. Private ABF may attract higher capital charges due to lack of ratings and valuation subjectivity, requiring careful capital-adjusted return analysis.
5. Governance and Operational Risk
Private ABF requires enhanced governance, including independent valuation, collateral verification, manager oversight, and third-party risk controls. Public ABS generally involves lower operational complexity due to standardised reporting and market pricing.
6. Portfolio Construction Implications
Public ABS, Public ABF and Private ABF should be viewed as complementary. Public ABS can form a liquid core allocation, while Private ABF may be used selectively as a yield-enhancing satellite where governance capability and capital headroom permit. Public and Private ABF provide diversification through different mechanisms and are most effective when combined.
Indicative Capital Impact Comparisons
The table below provides an indicative comparison for Australian APRA-regulated insurers. Note: It is illustrative only and actual capital outcomes will depend on asset structure, ratings, duration, liquidity, and insurer-specific stress assumptions.
| Public ABF (ABS) | Private ABF (Private ABL) | Capital Implication | Board / APRA Consideration | |
| Credit risk & diversification | Large pooled exposures, typically rated; diversified obligor risk | Concentrated borrower and asset pools; typically, unrated or internally rated | Lower prescribed capital charges for highly rated tranches; predictable stress outcomes | Reliance on external ratings vs internal credit governance |
| Spread & market risk | Subject to observable market spread volatility | Less mark-to-market volatility; economic spread risk remains | Public ABS capital sensitive to spread stress; private ABF capital driven by model assumptions | Need to demonstrate conservative stress calibration |
| Liquidity risk | Secondary market liquidity available in normal market conditions | Buy-and-hold; limited or no secondary liquidity | Private ABF may attract higher capital overlays for liquidity risk | Explicit liquidity buffers and cash-flow analysis required |
| Valuation & model risk | Independent pricing and frequent market valuation | Model-based valuation relying on manager reporting | Higher capital conservatism often applied to private assets | Independent valuation governance expected |
| Operational & third-party risk | Standardised servicing and reporting frameworks | Greater reliance on manager systems and controls | Potential capital overlays where operational risk is material | Assurance, audits, and CPS-aligned controls critical |
| Overall capital efficiency | Generally higher capital efficiency on a risk-adjusted basis | Potential to be capital efficient due to higher yields | Capital adjusted return, not nominal yield, is decisive | Clear Board narrative required |
Source: Janus Henderson Investors, March 2026
Summary
For Australian regulated insurers, the effectiveness of Asset Backed Finance allocations depends on portfolio resilience, capital efficiency, liquidity and governance structures. Institutions that apply a disciplined APRA-aligned framework can harness the benefits of both public and private ABF while meeting policyholder and stakeholder expectations.
All opinions and estimates in this information are subject to change without notice and are the views of the author at the time of publication. Janus Henderson is not under any obligation to update this information to the extent that it is or becomes out of date or incorrect. The information herein shall not in any way constitute advice or an invitation to invest. It is solely for information purposes and subject to change without notice. This information does not purport to be a comprehensive statement or description of any markets or securities referred to within. Any references to individual securities do not constitute a securities recommendation. Past performance is not indicative of future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
Whilst Janus Henderson believe that the information is correct at the date of publication, no warranty or representation is given to this effect and no responsibility can be accepted by Janus Henderson to any end users for any action taken on the basis of this information.