The challenges of doubling your money in Asia-Pacific

The region is attracting stronger interest, but a weak fundraising environment is proving a hindrance to private debt’s progress.

How to double your returns is a good way to start a discussion with any investor. That’s what Hong Kong-based fund manager Zerobridge Partners may have had in mind when it released a report this week drawing attention to the possibility that investors might achieve an unlevered gross internal rate of return of 15 percent or more from mid-market lending in the region, compared with 7-10 percent in the US and Europe.

As an up-and-coming fund manager itself, Zerobridge has something of a vested interest in putting that return figure out there. Nonetheless, can you really blame it at a time when interest in Asia-Pacific private debt strategies has arguably never been greater, but – at a time when investors have been unsettled by the pandemic and forced to adjust to remote due diligence – the availability of capital has never been scarcer?

Our latest fundraising data for the first quarter of this year show no sign of an immediate recovery from the travails of last year. Just over $39 billion was raised globally during the three months, the lowest first-quarter total since 2016. Moreover, only $500 million was raised by funds based within Asia-Pacific. It’s worth noting, however, that funds with a multi-regional focus, and which may include Asia-Pacific, accounted for a much higher $12.5 billion.

There’s little in the numbers yet to reflect the growing interest in Asia-Pacific from managers and investors – an interest piqued, in part, by the relatively rapid recovery of many its markets from the economic effects of the pandemic. Some managers with aspirations to build global asset management businesses – such as Ares and KKR – see the region as vital to their aspirations. Permira appears to think similarly, identifying Asia-Pacific as a growth opportunity as it moves to ramp up its credit activities.

Many of the positive attributes were discussed at this week’s PDI APAC Summit 2021, including during a panel cheerily titled ‘How the world is learning to love private debt in APAC’. But the panel also delved into some of the challenges, such as defaults creeping up, the need to face up to unrealistic credit ratings, the choppiness on the bond market and the importance of developing a stronger focus on ESG.

With new local managers being launched and global players seeing the region as an increasingly vital component of their plans, there can be little doubt that Asia-Pacific will make its presence felt more strongly in future iterations of our fundraising data. Yet, however persuasive the promise of high returns, it may take a while yet.

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