Could 2022 be Asia’s breakthrough year for private credit?

The Asia-Pacific region has seen remarkable economic development in the past 20 years and today is a major destination for investment in equities, bonds and real assets. Among alternatives, private equity is a major force in the region, but private credit has lagged and the market remains relatively small.

But there are signs this year that things are starting to change. When I spoke to fund managers active in the region about their expectations for growth of the private credit market, most felt Asia-Pacific was around a decade behind Europe in terms of its development and even further behind the US. While Private Debt Investor does see regular fundraising activity for debt strategies in Asia, the amount of capital raised is typically in the single digit billions of dollars.

But an increasing number of alternatives managers are shifting their focus to the East. The US is now in a technical recession and it is believed that much of Europe is also in recession. Moreover, the Asia-Pacific is home to two up-and-coming superpowers in India and China who are shifting the economic centre of gravity in the world away from the West. While Asian markets are by no means immune to the economic turmoil that has beset the world since the covid-19 pandemic erupted in early 2020, they have the benefit of still having a lot of scope for development, and that will need capital to nurture further growth.

While banks in the region are typically better capitalised than in Europe and the US, they are still unlikely to be able to meet the huge demands for capital that businesses in the Asia-Pacific need to reach their full potential.

Just this week, Waterfall Asset Management announced it was opening an office in Hong Kong to serve borrowers in the region across corporate lending and real estate. Apollo launched a $1.25 billion credit strategy in the region in June, while in May Allianz Global Investors held a first close of its inaugural dedicated private credit vehicle in Asia.

The first half of 2022 also saw, for the first time, Asian private debt fundraising ahead of Europe, according to PDI’s Fundraising Report. While this was mainly driven by a sudden drop in European funds hitting final close, it demonstrates the relative lack of confidence in Europe that is not mirrored in Asia. A decade ago in 2012, Europe’s private credit began to take off and started to become a regular feature in LP portfolios. If Asia truly is a decade behind, then we may look back on 2022 as a landmark year.