The global infrastructure funding gap has reached a critical juncture, with the American Society of Civil Engineers projecting a $3.7 trillion shortfall in U.S. infrastructure investment alone by 2035, while Europe faces a €750–800 billion annual deficit¹ to meet climate and digitalization goals. As traditional lenders retreat due to post-2008 regulatory constraints, asset-based finance (ABF) and private credit managers are emerging as linchpins in bridging this gap. In 2025, this $1.7 trillion private credit industry is undergoing a transformative shift: forging strategic alliances with banks and insurers, while pioneering the use of non-traditional collateral like carbon credits to fund greenfield projects.

 

The Retreat of Traditional Lenders and Rise of Private Credit

 Banks’ share of infrastructure lending has plummeted from 90% pre-2008 to under 70% today, driven by Basel III capital requirements that penalize long-term loans. This retreat has created fertile ground for private credit² managers, who now account for over a quarter (27%) of the $518 billion global infrastructure debt market. The retreat of the banking system has been due to higher risk profile of the corporate cash lending structure, lacking as it is in any asset backed collateral as also due to higher levels of institutional scrutiny due to regulations like Dodd-Frank in the US and Basel in Europe. This gap has been increasingly filled by private credit managers launching Asset-Based Finance³ and Asset-Based Lending (ABF/ABL) solutions, either on their own or in partnership with financial institutions.

 Recent high-profile partnerships, such as AGL Credit Management with Barclays, and Centerbridge Partners with Wells Fargo, highlight how banks are tapping into their customer networks to enter the direct lending market. By collaborating with private credit investors to launch direct lending funds or platforms, seeded with capital from both sides, banks can expand their reach while maintaining balance sheet efficiency. These strategic alliances offer mutual advantages and are likely to become more common in the coming year. We also expect to see growth in hybrid financing structures that combine private equity and private credit, as private equity-backed companies increasingly rely on private credit. Additionally, banks are accelerating the sale of non-core loan portfolios to private credit firms, a move aimed at optimizing risk-weighted assets.

 

ABF Mandates On The Rise

 Pension funds, both in the US and Europe have increasingly committed to ABF as a significant strategy in their private credit allocations. Pension funds are increasingly investing in asset-based strategies (ABF) due to their diversification benefits, complementarity with direct lending, and the crucial protection offered by asset collateralization, especially amidst rising corporate defaults. For entities operating under risk-based capital frameworks such as Solvency II (EU) or NAIC’s RBC (US), ABF can be particularly efficient.

 This efficiency stems from its collateralized nature and, in some cases, the ability to secure an investment-grade rating, both of which can lower the risk-weighted capital charge for insurers. Consequently, investment-grade private credit, which significantly includes asset-based financing, is emerging as a primary focus for many insurance companies and private debt fund managers⁴.

 

Carbon Credits: The New Frontier in Collateral Innovation

With $850 billion in annual voluntary carbon market transactions projected by 2050, private lenders are increasingly accepting carbon credits as collateral. As global carbon-control efforts intensify, the development of tradeable voluntary carbon credit markets is gaining significant traction. While nascent in some Asian countries, emissions trading markets are well-established elsewhere, with voluntary carbon credit trading having occurred for years.

 Given their tradeable nature, market participants increasingly view voluntary carbon credits as valuable, liquid assets suitable for collateralizing loans or other financing. Similar to shares or commodities, these credits can be sold or transferred in case of default, offering financiers a recovery mechanism. Such financing could provide working capital secured by existing carbon credit holdings (e.g., through borrowing base or margin loan structures) or fund emissions-reduction projects (like renewable energy or forestry) against the value of future carbon credit streams.

 However, Carbon Credits as a collateral have their challenges:

• Valuation Volatility: Financiers must navigate the inherent uncertainty and volatility of carbon markets by implementing protective mechanisms. This includes strategies like hedging or the ability to demand additional collateral, ensuring their financial exposure remains consistently and sufficiently covered.
• Jurisdictional Complexity: The legal status and handling of carbon credits differ significantly across jurisdictions. Therefore, establishing a valid security interest in carbon credits, and ensuring a financier can practically seize and sell them upon enforcement to recover capital, necessitates a tailored, jurisdiction-specific analysis.

As 2026 approaches, three trends will dominate:

• Bank Balance Sheet Optimization: Expect more NPL sales to private credit funds – Goldman Sachs offloaded $4.2 billion in infrastructure loans in Q1 2025710.
• Insurance-Led Syndications: This confluence of supply-demand dynamics, and the natural fit of infrastructure debt for insurance balance sheets, point to an appealing opportunity for insurers today.
• Carbon-Backed Securitization: Private debt for carbon projects is set to integrate more closely with conventional financing as banks and financial institutions grow more accustomed to the market’s inherent risks and opportunities. This integration could lead to the standardization of financial products and terms specifically for carbon initiatives.

 The confluence of private debt and voluntary carbon markets is ripe for innovation. Driven by increasing demand for high-quality carbon credits, financing opportunities for projects generating these credits will expand. Nevertheless, investors and project developers must stay agile and well-informed to successfully navigate this evolving landscape, given the dynamic regulatory environment, market fluctuations, and inherent project risks.

1. https://www.barings.com/en-us/guest/perspectives/viewpoints/infrastructure-debt-the-long-game-privatecredit-insurancesolutions-vwpt

2. https://www.dechert.com/about/dechert-year-in-review/private-credit-highlights-and-outlook.html

3. https://www.privatecapitalsolutions.com/insights/the-growth-of-asset-based-finance-in-private-credit-markets

4. https://www.flowcarbon.com/knowcarbon/impact-of-private-debt-in-vcm