Off to Singapore, with high hopes

If investor sentiment is a reliable guide, the outlook for Asia-Pacific private debt appears favourable. In our latest LP Perspectives survey, 20 percent of investors said they would take greater interest in both Western Europe and Asia-Pacific over the next year – but while 17 percent said they would take less interest in Western Europe, the equivalent figure for Asia-Pacific was only 13 percent. It was a close race but, of the two, Asia-Pacific comes out marginally ahead in the popularity stakes.

Next week at the Fairmont Singapore, I will be moderating a panel at our APAC Forum focusing on the “Next Phase for APAC Private Credit”, joined by representatives from Apollo, DBS Bank and Muzinich & Co. On a prep call for the panel, I was advised that it would probably be sensible to start with the past and current phases to set the scene. Couldn’t really argue with that.

The past phase was one of very slow acceptance of private debt in a region dominated by banks. Up until last year, the highest aggregate annual amount raised by funds with a sole focus on Asia-Pacific was the $10.7 billion collected in 2019. It was also a region traditionally dominated by distressed and special situations – the riskier but higher returning end of the private debt spectrum that arguably has more in common with private equity than with most private debt strategies.

What of the current phase? Last year saw a new fundraising record set, at more than $14 billion. Still tiny in comparison with the $248 billion that was raised globally last year, but nonetheless a hint that the positive investor sentiment referred to above is beginning to translate into meaningful capital commitments.

And that capital is beginning to flow into a wider range of strategies. Perhaps most strikingly, direct lending – which became the bedrock of the asset class in the US and Europe post-GFC – is now gathering real momentum as the grip of the banks loosens. Our Perspectives survey revealed that 55 percent of the capital raised for Asia-Pacific-focused private debt last year was for senior debt strategies, compared with 20 percent for distressed. This represents quite a turnaround: as recently as 2018, the equivalent figures were 18 percent for senior debt and 49 percent for distressed.

Investors, some spooked by the macroeconomic conditions in the West – not all of which are shared in the East – may be interested in this shift towards what might be termed ‘core’ private debt. It suggests Asia-Pacific has every right to be confident that a sustainable and sizeable private debt industry will become a reality before too much longer.

We look forward to bringing you all the talking points and insights from the APAC Forum in Singapore next week alongside our regular coverage.

Write to the author at andy.t@pei.group.