Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
The Asia Pacific region has only played a minor role in the rise of private credit over the past decade. As per data by Preqin, globally, the market has nearly tripled during this period, growing from $441.2 bn to $1.7 tn. However, Asia Pacific represents only 7% of the market. Within the region, private credit amounts to $124 bn, significantly overshadowed by the more established private equity market ($1 tn) and venture capital ($1.4 tn).
Nevertheless, a recent insight by Muzinich & Co. suggests that the Asia Pacific private credit sector has more potential than its current size suggests.
“While small, it is growing rapidly – almost doubling in size over the past five years. In our view, that growth can continue for a number of reasons, although accessing the right opportunities will require a flexible and multidimensional approach by investors,” says Andrew Tan, Head of Asia Pacific Private Debt at Muzinich.
The asset manager explains five factors investors should know when considering Asian private credit.
According to Muzinich, bank stress and regulatory changes are driving increased demand for alternative financing in Asia, especially among smaller companies. “Today, we mainly see better-priced and better-quality opportunities in markets where there is some level of bank stress or pullback in risk appetite. That includes Hong Kong and Australia,” says Tan. He further notes that markets like Indonesia, Singapore, and India are interesting.
The second factor the asset manager highlights is the market is quite heterogeneous. “Over the past couple of decades, we have seen different markets emerge at different points in time where they offer value and opportunities. At other times, those same markets get ahead of themselves, and it is difficult to achieve the same risk-adjusted returns,” explains Tan.
One other major factor Muzinich highlights is the legal environment in Asia. It differs between Commonwealth countries (past and present) governed by common law with protective market measures and civil-law jurisdictions where rules are in place but less strictly enforced.
Muzinich further sees an increasing need for alternative funding in Asia, which should boost the private credit market.
Lastly, the asset manager believes that clarity on the direction of interest rates should support direct lending, even in a scenario where rates rise over the longer term.
