Insurance Capital Drives Asset-Based Finance Revolution

In Brief:

Keith Ashton and David Ells, partners and portfolio managers at Ares Management's Alternative Credit division, joined InsuranceAUM's Stewart Foley to examine the explosive growth of asset-based finance (ABF) in insurance portfolios. Both veterans with deep insurance company experience—Ells spent 15 years at Northwestern Mutual—warn that insurers face a critical allocation decision as traditional corporate bond strategies become insufficient for competitive liability pricing. They predict ABF will represent 25-60% of insurance portfolios within years, driven by yield premiums and enhanced risk diversification through pools of thousands of underlying assets rather than single-name corporate exposure.

Big Picture Drivers:

• Market Evolution: Private credit shifting from public syndicated deals to directly originated transactions

• Capital Migration: Insurance companies allocating 25-60% of portfolios to private credit versus historical 5-8% high yield exposure

• Regulatory Response: Banks pulling back from lending creates opportunities for insurance capital deployment

• Technology Advancement: Proprietary analytics platforms enabling access to previously clubby institutional markets

Key Topics Covered:

• ABF Definition: Investing in pools of credit assets, loans, and receivables versus single-name corporate bonds

• Analytics Requirements: Custom modeling capabilities for stress-testing underlying asset portfolios and cash flows

• Insurance Integration: How internal insurance experience shapes portfolio construction and client solutions

• Market Access: Evolution from exclusive large-insurer participation to broad accessibility through asset managers

Key Insights:

• Risk Exponential: Credit risk moves exponentially rather than linearly despite market pricing suggesting otherwise

• Cash Flow Focus: Successful investing requires concentrating on assets and cash flows while ignoring market narratives

• Human Capital Challenge: Building internal ABF expertise requires 80+ person teams with specialized data analysis capabilities

• Structural Advantage: Private origination capabilities provide superior deal flow compared to public market purchasing

• Cultural Transformation: Insurance companies must overcome traditional mindsets and pivot from decades-old fixed income approaches

• Market Democratization: Previously exclusive ABF markets now accessible to insurers of all sizes through specialized asset managers

By The Numbers:

• $35 trillion: Total global assets owned by insurance companies (30% of world's invested assets)

• 25-60%: Private credit allocation range in modern insurance portfolios versus historical corporate bond dominance

• 80 people: Ares team size dedicated to alternative credit analysis and origination

• 21 times: Number of moves Keith Ashton made before graduating high school, attending 10 different schools

• 2017-2018: Timeframe when ABF markets transitioned from "clubby" exclusive access to broad insurance company participation

Memorable Quotes:

• "Risk is exponential even though the market may price it as linear" - Keith Ashton on why credit curves flatten dangerously during crowded market conditions

• "Buy assets and cash flows. The rest is noise" - David Ells emphasizing the fundamental discipline that prevents losses in volatile markets

• "The times you get into trouble in this business...is when you forget that when you forget to look at assets and cash flows and focus on those things and you get caught up in the story" - David Ells explaining how market narratives derail investment discipline

• "If you don't have your own team internal doing this you had no way to access this market" - Keith Ashton describing the historical exclusivity that kept smaller insurers out of ABF

• "Are you a chef or are you a food critic? There's a big difference in your approach to things" - Joel's analogy highlighting the advantage of creating deals versus just buying from markets

The Wrap: 

The ABF revolution represents a fundamental shift in insurance investing driven by competitive liability pressures and yield requirements. As traditional corporate bond allocations prove insufficient, insurers must navigate complex implementation decisions between building internal capabilities or partnering with specialized managers. This secular trend will reshape insurance portfolios over the next decade, requiring sophisticated analytics and direct origination capabilities to capture the risk-adjusted return premiums available in structured credit markets.