Europe is the place to avoid. That was the view, which we reported last week, of longstanding limited partner Tom Tull as he said that global turbulence marked a good time to carefully evaluate the weighting of geographic exposures. He was not the only person on stage at our APAC Forum to make the argument that Asia-Pacific looks a relatively attractive proposition for private debt.
There were plenty of arguments put forward to support the notion of Asia-Pacific as an under-exploited region. Specific to current conditions, the commodity price shocks that are rattling markets in general serve some of Asia-Pacific’s markets rather well – Australia, Indonesia and Malaysia were mentioned as examples in this context. Japan and Korea were other markets viewed as well-positioned.
Moreover, Asia-Pacific’s private debt market is widely acknowledged to offer potential for good returns (amid less competition for deals) and stronger lender documentation. The wide-ranging use of covenants is a reminder of the type of deal structuring that appears to have been consigned to the past in North America and parts of Europe – at least at the larger end of the market.
An interesting point to note was the apparent appetite from investors at the Forum for specialist financing strategies, at least some of which came from investors based in a region associated with its conservatism when it comes to investment choices. The likes of real estate credit, and even something as non-mainstream as royalties, were cited as LPs seem more inclined than previously to swap plain vanilla options for areas of the market where companies are in need of capital that the banks will no longer provide.
It’s important to note, however, that not all investors are enamoured of speciality strategies. The scandal at supply chain financier Greensill, said one Forum participant, was a reminder that backing niche financing approaches may not always end well. It was stressed that asset selection really matters along with considerations about whether the strategy in question can scale up and achieve consistent performance.
Beyond the strategy type, there were concerns about rule of law and varying accounting conventions in different Asia-Pacific markets. If Europe is the place to avoid, Asia-Pacific may not yet be the place for everyone to embrace. But the conversations about its potential deserve serious consideration.
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