By: Dominic Mazzone, Managing Partner, Regent Global Funds

I think investors and the financial sector as a whole need to become educated on the profitability of Asset Based Lenders and the hedge they represent.    The lack of liquidity in the financial sector seems to be getting daily press and for every bank that tightens guidelines or closes all together, you will have more borrowers looking for a way to get financing.  In particular, business borrowers and commercial real estate borrowers are finding it harder and harder to get approved for any type of financing.   If you think this sounds like an opportunity you are correct and Asset Based Lenders (ABL) are capitalizing on this.  ABLs can take many forms and for the most part they come in either business based asset lending or commercial real estate based asset lending.  Business based lending is usually on assets such as accounts receivables, inventory, equipment, and even intangible assets like patents, trademarks, etc.  However, Asset Based Lending for real estate has become increasingly popular as there is a significant credit void in the sector.   If you are an investor and you didn’t know or understand about Asset Based Lending, don’t feel bad.  In my opinion banks really don’t understand them either as they are refusing to lend to them like everyone else in the financial sector, and now that I think of it, every sector for that matter.   You might be saying to yourself sure, if I was a bank I wouldn’t lend to anyone in the financial sector, but this is definitely a misuse of a generalization.  Consider that banks were lending at 100% loan-to-value(LTV) while ABL’s were generally lending below 70% Loan-to-Value(LTV),  and in the current cycle many of them are turning in positive returns while the financial sector and the market as a whole continues to deteriorate.  You don’t have to be a genius to see that this is a hedge and we are now seeing a lot of funds attempting to capitalize on the opportunity.   However, as an investor you might want to consider whether or not a fund is a true ABL or just an ABL tourist as I like to call them.  To generate good returns in the long run you need a true ABL that has experience and practices a fine degree of caution.  For a complete explanation of ABL’s my co-fund manager of Regent Global Funds, Michael Facchini, will be issuing an article about the basics of ABL’s by the end of the week on www.investingsymposium.com.

Copyright: Dominic Mazzone Regent Global Funds 2008