Over the past decades, global investors have shown rising interest in alternative assets. Among these, Asia private credit has emerged as the fastest-growing and most promising asset class. In this guide, we will explore the key reasons behind this trend, backed by actual growth figures and clear insights.
What Is Asia Private Credit?
Let’s have a look at the Asian private credit market size before proceeding further, but first, let’s clarify the term “Asia private credit.” By private credit in the Asian market, we refer to the loans and credits that private lenders in the Asian market provide to private corporations in the Asian region.
An Attracting Market with High Growth Potential
One of the key reasons why investors are increasingly turning towards private credit in Asia is the rapid expansion of the market. In the early 2000s, the Asian private credit market was actually negligible.
However, by the middle of 2022, the assets under management had swelled from approximately US$3.2 billion to over US$90 billion, close to a 30-fold increase in two decades.
Additionally, more recent estimates also suggest that the Asia-Pacific market size for the Private Credit Market was around US$114.5 billion as of 2024, and it has potential growth to reach over US$390 billion by 2031, with a remarkable CAGR of around 19%.
Why This Growth is Taking Place
Investors aren’t investing in Asian private credit blindly. There are a number of structural reasons behind these investments:
1. Bank Lending Constraints
The traditional banks operating in most Asian nations face a challenge due to increased regulations. The banks have become more conservative in their lending practices, especially when it comes to mid-sized businesses, infrastructure loans, and below investment-grade clients. Non-bank lenders fill the gap created by the traditional banks.
2. Higher Yield Potential
In contrast to public bonds and other relatively safe credit instruments like high-grade bonds, the returns on private credit might be relatively higher. Certain reports indicate that the Asian private credit market has the potential to earn 300-400 basis points over similar markets in the West.
3. Strong Economic Growth
The Asian economies are still expanding at a higher rate compared to the economies in developed markets. HSBC Global Research forecasts the growth of Asian economies at around 4.0% each year, in comparison to the sluggish growth in the United States and Europe.
Such an increase drives the demand for business growth and infrastructure development, with Mid-market financing being one of the areas where private credit is crucial.
4. Portfolio Divers
Global investors increasingly look to Asia as a means of diversification out of more conventional investment markets in the West. It is precisely the differing patterns of growth, population dynamics, and investment financing needs of Asia.
It provides uniquely non-correlated opportunities with emerging investment potential, which exist outside of, and in addition to, investment opportunities in the United States and Europe.
Who Are The Potential Investors?
Sources of private credit in Asia include institutional investors, such as pension funds, insurance companies, or endowments, through to HNWs or family offices. Some of the key players have plans to upsize, according to market surveys, including the following:
- A significant 50% of the Asia Pacific investors polled planned to increase their allocations to private credit.
- In other studies, about 68% of institutions in the Asia-Pacific region have plans to increase their portfolio in private credit.
These data not only indicate the global interest but also the conviction in the region regarding the value of private credit portfolios.
Looking Ahead
The projected growth of Asia private credit suggests that it will play a bigger role in global portfolios. Projections show the Asia-Pacific market expanding from approximately US$59 billion in 2024 to US$92 billion by 2027, a 46% increase in just a few years.
Conclusion: A Strategic Allocation with Long-Term Potential
In summary, global investors are increasing their exposure to the Asia private credit. Key reasons for this increase are structural growth, attractive yields, economic expansion, and diversification benefits. Despite some common challenges, the growth of this asset is clear and backed by real figures and actual growth.
Asia private debt is a compelling alternative credit opportunity in the region. ShoreVest is at the forefront of identifying and capitalizing on these opportunities. They help investors access consistent income and sustainable growth across Asia’s dynamic credit markets.
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