Introduction: Specialty Finance

As mentioned in our 2026 Capital Markets Forecast, we expect private debt to remain a compelling source of risk-adjusted returns, supported by structural protections and disciplined underwriting. Specialty finance is an attractive segment of private debt that can offer attractive diversification and structural protection in an increasingly competitive private debt market.

Specialty finance represents a form of lending in which loans are underwritten and secured (collateralized) primarily on the value of a borrower’s assets, ranging from traditional working-capital assets such as receivables and inventory to hard and niche assets like aviation and royalties. The primary underwriting focus for specialty finance is on asset values, collateral liquidity, and liquidation values.

Specialty finance strategies typically incorporate structural discipline through conservative loan-to-value or advance rate structures, strict asset eligibility criteria, and frequent collateral appraisals and monitoring, along with tight lender safeguards designed to prioritize capital preservation. While outcomes depend on asset quality and manager execution, well-structured specialty finance strategies generally exhibit reduced sensitivity to the corporate earnings cycle and provide downside protection through underwriting, risk management, and enforceable structural protections, offering diversification benefits to a private debt allocation within portfolios.

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