By Neil Synnott, Chief Commercial Officer, Asia
In Asia, financial markets are already responding to the outcome of the U.S. presidential election, with ripple effects from a Trump presidency and a formal Basel IV rollout in Europe likely to extend to 2030 and beyond.
President-elect Trump’s administration is widely expected to intensify tariffs against China and other Asian trading partners, which had foreign investors withdrawing from Asian bonds as early as October in anticipation. The resulting squeeze on Asian economies may generate increased demand for private credit as businesses seek alternative sources of financing. Europe’s Basel IV regulation, effective starting January 2025, is also likely to impact global private credit markets as bank lending becomes a less competitive alternative.
Such shifts may be the catalyst Asia needs to enter a “Golden Age” of private credit. While the asset class has grown more slowly in Asia than in the U.S., UK and Europe, Asia’s growing demand for capital—combined with a relatively underdeveloped private lending market—has set the stage for private credit to thrive.
In this article, we’ll discuss the growing phenomenon of private credit across Asian markets, including our predictions for how investors and borrowers alike can best capitalise on emerging opportunities.
The rise of private credit in Asia
Traditional banks have historically dominated credit markets in Asia, with non-bank credit accounting for less than 30% of the marketplace compared to a steep majority in Europe and North America. But this landscape is changing quickly.
According to Preqin data, Asia-Pacific private credit AUM grew from $15.4 billion in 2014 to $92.9 billion as of September 2023, a 500% increase despite the global market downturn in that year. Over the last five years alone, the market has more than doubled in size. The funding gap in Asia represents approximately $2.2 trillion in unmet financing needs, a gap private debt managers can fill with customised financing solutions that banks often struggle to navigate.
If those figures aren’t impressive enough, consider this: the Asian credit market is the largest in the world, with a market size of $63 trillion—nearly the size of the North American and European credit markets combined. While this figure refers to aggregate credit capital, not just private credit, there is immense potential in Asian markets for this asset class. Even a modest shift of 1% bank credit to private credit could translate to an additional $620 billion flowing into the private sector.
Emerging trends in Asian markets
As in other jurisdictions, Asia’s private credit market was born from distressed debt as private lenders provided refinancing options during the Great Financial Crisis. While the overall market trajectory in Asia is similar to what we’ve seen in North America and Europe, a few trends set Asia apart.
- Distressed debt: Asia has developed expertise in providing complex private loans for unique or distressed situations. This expertise, combined with a rising tide of defaults in 2024 and over $500 billion in dry powder available, means that private debt funds in Asia are well-positioned to capture emerging opportunities
- Real estate debt: Real estate debt is another bright spot in Asia, except for China wherein investors have grown cautious about mainland China’s slowing economy. Private credit funds are an attractive source of financing for real estate projects that might otherwise struggle to secure traditional bank loans, making them critical for ongoing urbanisation and infrastructure development in the rest of Asia
- SMEs and startups: Direct lending to small and medium-sized enterprises (SMEs) and startups in Asia represents a further opportunity. Venture debt has become a popular financing option for startups in particular, further fuelling the demand for private credit
- Regulatory environment: Another factor in Asia’s appeal is that its regulatory environment is generally less restrictive. For example, recent changes by the Securities and Exchange Board of India (SEBI) allow alternative investment funds to engage in credit default swap (CDS) transactions, providing more options to hedge market risks.
Opportunities for investors: Asia’s untapped potential
For investors, Asia offers many compelling reasons to explore private credit as an asset class:
- Size and diversity: Asia’s natural geographic and social diversity hold distinct promise, with markets like India and Southeast Asia expected to outperform in coming years. India has become a particular hotbed of private credit activity, with global private debt funds financing ongoing infrastructure projects
- Buyouts: Asia’s buyout market is also maturing, providing more opportunities for private credit to support leveraged buyouts. As private equity activity grows, this trend is likely to continue, driving further demand for private credit
- Emerging consumer classes: Expanding middle-market companies and the rapidly growing consumer class fuel a high demand for alternative financing, with no signs of slowing. Traditional banks have struggled to provide options flexible enough for these borrowers, creating an ideal environment for private credit to thrive.
The future of private credit in Asia
Private credit is poised to play a crucial role in financing the future of industries across Asia. Banks will likely continue to cede ground to more specialised and flexible financing options, solidifying private credit as an essential asset class in Asia.
