Definition

Consumer debt represents a substantial segment of private credit. Unlike corporate or SME lending, these exposures are issued directly to individuals. The underlying asset class is highly diversified, spanning:

  • Personal loans
  • Credit card receivables
  • Auto loans
  • Student loans
  • Telecommunications and utility contracts

For investors, consumer debt offers exposure to granular, diversified receivables that are often uncorrelated with traditional corporate credit cycles. The value lies not only in the flow of performing assets, but in the ability to acquire, restructure, and manage non-performing portfolios.

Performing vs. Non-Performing vs. Re-Performing

Consumer debt portfolios are typically categorised into three buckets:

Performing

Loans where borrowers continue to meet repayment schedules. Performing portfolios are usually sold by originators as part of balance sheet optimisation, M&A transactions, or capital strategy shifts.

Non-Performing (NPLs)

Defaulted loans where borrowers have ceased repayment. The obligations remain legally enforceable, but the originator has written the loans off their balance sheet. These portfolios are frequently sold into secondary markets at significant discounts.

Re-Performing

Portfolios of loans once classified as non-performing but where specialist servicers have re-established repayment agreements. These exposures sit between the distressed and performing categories, offering improved recovery visibility and cash flow.

How It Works

The investment opportunity often concentrates on non-performing portfolios. Once originators write these loans off, specialist firms acquire them at steep discounts — sometimes at 0.7 to 7 cents on the dollar.

For example, a $1 million NPL portfolio may transact for $7,000 to $70,000. Recovery firms, either in-house or outsourced, then negotiate affordable repayment plans with borrowers. Once payment streams resume, these exposures shift into the re-performing category.

Investors and servicers then face a strategic choice:

  • Retain the re-performing loans and earn steady repayment cash flows, capturing yield significantly above acquisition cost.
  • Repackage and resell the portfolio to re-performing investors, crystallising gains more quickly but forgoing long-term income.

This ecosystem of origination, default, restructuring, and re-trading underpins the consumer debt market.

The Opportunity

The non-performing debt segment is high risk, high reward. Scale, data, and servicing expertise are essential — factors that favour established global players. Yet even with concentration among larger firms, opportunities persist for allocators.

  • Macro tailwinds: Rising interest rates, inflationary pressure, and consumer stress have expanded the pipeline of NPL portfolios globally.
  • Funding gaps: New entrants and regional players often lack permanent capital, relying on private markets for early-stage funding.
  • Private market access: For institutional investors and family offices, this provides a route to participate in an asset class that is typically inaccessible via public markets.

Exposure to consumer debt, particularly through structured vehicles, offers a diversified, collateralised, and high-yielding opportunity, albeit one requiring governance discipline.

Institutional Considerations

While lucrative, consumer debt investing demands caution. Allocators must evaluate:

  • Servicer capability: Recovery rates depend on the skill, infrastructure, and compliance of the servicer.
  • Jurisdictional frameworks: Legal regimes for debt enforcement vary widely, impacting recovery dynamics.
  • Portfolio vintage and data quality: Older, unworked portfolios may be priced cheaply but offer limited recovery potential.
  • Liquidity: Secondary markets exist but are not always deep; investors should model for illiquidity.

For disciplined allocators, consumer debt can complement broader private credit allocations, providing short-duration, diversified exposures with strong risk-adjusted return potential when well managed.

Conclusion

Consumer debt is a vast and resilient asset class. Within it, the non-performing and re-performing segments offer investors access to mispriced credit exposures with significant upside, provided recovery processes are well governed.

As macroeconomic stress generates new flows of NPL portfolios, demand for private market funding will remain strong. For family offices and institutions, this represents a lucrative but governance-intensive opportunity — one best accessed through experienced servicers, structured vehicles, and transparent reporting frameworks.