Private Credit in Asia report
The Alternative Credit Council (ACC), Simmons & Simmons and EY have published the ACC’s first ‘Private Credit in Asia’ report.
This report is based on ACC data and a series of in-depth interviews with industry leaders. Below are some key takeaways from the report.
Strong drivers of growth
Investor appetite for differentiated returns, bank retrenchment and borrower demand for bespoke finance solutions are fueling the growth of private credit in Asia.
Diverse investor base
Private credit is facilitating inward investment into Asia - 77% of private credit capital raised comes from non-Asian investors. These investors include institutional investors, family offices and HNWIs.
Flexible investment mandates
Asian private credit managers combine lending to SMEs and mid-market businesses with a wider spectrum of debt strategies, compared to those in more developed markets. As the private credit market matures, there is likely to be greater specialisation among private credit managers in the region.
Managing risk
The perception of an “Asian risk premium” among investors is a key challenge for managers when raising capital. This risk premium is largely driven downside risks rather than the economic opportunities in the region. Investment expertise and local knowledge are central to successful Asian lending strategies.
Primacy of relationships
Almost three quarters of transactions are originated through relationships with a borrower, consultants or through existing industry networks. Most deals in the region are sponsorless with only 10% of transactions originated through private equity channels.
Fund structuring matters
54% of private credit managers use closed-ended funds with fixed maturity. 21% use open-ended funds that have redemption rights aligned to the life of the investment. Industry has welcomed the introduction of new fund vehicles in Hong Kong and Singapore which support the growth of these local fund management centres.
ESG and responsible investment
Investors in Asian private credit have the same high expectations regarding ESG as they do across other allocations. ESG and responsible investment are now established within the risk management and investment due diligence undertaken by lenders.
The case for reform
Reducing barriers to private credit across the region will support the sector’s ability to support business growth, innovation and job creation. Greater investment by private credit firms in jurisdictions that have enacted reform will demonstrate the value of this to other jurisdictions.
