“Over the last 12 months, we’ve seen more profound shifts in Asian private credit than we saw in the prior decade,” says Neeraj Seth, head of Asian credit at BlackRock. The firm has reached a first close for its second fund targeting the region, Private Debt Investor can reveal. Market sources indicate the fund has raised around $390 million so far, exceeding the size of the predecessor fund.
“We’ve seen the impact of covid, the disintermediation of the banks and policy changes opening up financing gaps in the region,” says Seth. “There is a wide gap resulting from the opening up and a demand for the flexibility of private credit. Growth over the last six to 12 months has been quite rapid and we expect demand going forward to grow exponentially.”
BlackRock closed its first regional fund, Asia-Pacific Private Credit Opportunities Fund I, in April 2018, at around $330 million for the strategy in total. The latest fund, Asia-Pacific Private Credit Opportunities Fund II, has a further 18 months to reach its target size of between $1 billion and $1.5 billion, according to industry sources.
The firm’s big two target markets are India and China. India is currently on what Seth describes as a “weak footing” with covid having amplified challenges for companies in general and specifically within the banking system. As the economy slowly re-opens, he anticipates several years of opportunity for alternative lenders to support growing businesses. BlackRock’s focus is more on the performing than the non-performing space.
In China, which was “first in, first out” of the pandemic and where the economy has been recovering well, there has been a focus on deleveraging, which has reduced the flow of credit to small and medium-sized businesses. Seth believes there are opportunities in real estate, which has always been to the fore in China, but also in sectors where fast-growing businesses are flourishing such as consumer, healthcare, education and technology.
BlackRock invests opportunistically across the Asia-Pacific region, with other markets of interest including Indonesia and Australia, which have both seen banking consolidation.
Seth says both the number and size of deals has been growing. Around a year ago, the firm was typically targeting deals in the range of $25 million to $50 million, but this has increased to around $50 million to $60 million typically with a range of $30 million to $100 million.
Its latest conversations with clients have suggested to Seth that interest in Asia-Pacific private debt is growing from investors within the region as well as from continental Europe. European insurers and family offices, in particular, have demonstrated an increased appetite over the last year, while interest continues to be strong from North America.