7 alternative assets commercial lenders watch in 2025
Photo by Саша Алалыкин
Commercial lenders in 2025 are chasing yield beyond the usual playbook. Lifespan-linked products, receivables, and litigation funding are no longer fringe—they’re shaping how credit portfolios are built.
Picture a lender squeezed by tighter spreads and tougher competition. The ones willing to move into insurance-linked securities, transitional debt, or private credit stand to capture ground others miss.
Read on to learn more.
1. Longevity-linked instruments
As populations live longer, pension schemes and insurers are looking for tools that hedge exposure to life expectancy shifts. Longevity-linked bonds and swaps allow lenders to transfer or assume mortality risk in ways that smooth portfolio outcomes. Yield potential is moderate but the uncorrelated nature of these instruments adds stability. Operationally, pricing depends on actuarial assumptions that can evolve quickly, so model transparency is critical. Pension funds often consider alternative asset groups alongside traditional private equity allocations, making longevity products part of a wider allocation debate.
Firms such as Abacus provide lifespan-focused analytics that help investors interpret this emerging field and integrate it into portfolio construction.
2. Private credit
Private credit continues to be a strong magnet for institutional allocations. With banks constrained by regulation, direct lenders step in to provide tailored financing across middle-market buyouts, refinancing packages, reducing debt, and special situations. Commercial lenders are watching this space for its higher spread relative to liquid credit. Key watchpoints include:
- Covenant structures
- Leverage ratios
- Sector concentration
For institutions, the trade-off is clear: higher yields balanced against reduced liquidity and longer lock-ups.
3. Transitional real estate debt
As interest rates shift and commercial real estate valuations adjust, transitional debt is gaining appeal. These loans bridge the gap for properties in redevelopment, lease-up, or repositioning phases.
They offer above-average coupons and shorter durations, but lenders must navigate:
- Valuation uncertainty
- Borrower execution risk
- Potential refinancing bottlenecks
- Complex regulatory oversight
- Higher operational costs for monitoring diverse assets
4. Trade finance receivables
Global trade continues to grow, and with it the demand for receivables financing. Trade finance receivables allow lenders to diversify into short-duration exposures tied to goods movement. Default risk is often mitigated through credit insurance and structured platforms, though geopolitical shifts and supply chain disruptions can weigh heavily. For commercial lenders, this category provides turnover speed, attractive uncorrelated yield, and measurable ESG impact when tied to sustainable trade programs.
5. Equipment finance ABS
Securitizations of equipment loans and leases are becoming an active part of portfolios. Aircraft engines, construction equipment, and medical devices are just a few asset types bundled into asset-backed securities. Duration is typically medium term, spreads compare favorably with traditional ABS, and collateral recoveries are generally strong. Watchpoints include sector-specific downturns, technological obsolescence, and residual value risk. For lenders, equipment ABS provides a scalable way to enter diversified operating asset pools.
6. Insurance-linked securities
Insurance-linked securities remain an appealing diversifier, particularly catastrophe bonds and sidecars. These instruments allow capital markets to take on insurance risk, providing returns uncorrelated with credit cycles.
While yields can spike after catastrophe events, investors must manage:
- Model reliance
- Event clustering
- Reinsurance cycle timing
- Liquidity constraints
- Complex regulatory oversight
Commercial lenders see ILS as a useful sleeve for balancing traditional credit with risk types not tied to economic growth.
7. Litigation funding
Litigation finance continues to gain traction as both a funding mechanism and a portfolio diversifier. By backing legal claims in return for a share of proceeds, investors tap into outcomes independent of market direction.
Expected returns are high but uncertainty around case length, jurisdictional variation, and enforceability of judgments are critical risks. For lenders, litigation funding provides a way to capture alpha from a completely non-market driver. Institutions are now considering dedicated allocations, particularly as fund managers professionalize case selection and portfolio construction.
Final considerations for lenders
The alternative asset classes shaping 2025 require lenders to balance yield opportunity with operational discipline. Duration, liquidity, and regulatory compliance remain the filters through which every allocation must pass. Institutions exploring these opportunities are also developing stronger partnerships with data providers, legal experts, and risk-modeling firms.
For commercial lenders, staying competitive in 2025 is less about finding the single highest return and more about building multi-asset strategies that can weather different market conditions.