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Navigating Asia’s growing private credit markets
As Asia-focused hedge funds underperform and SME funding leaving a lot to be desired, alternative investors are turning to the debt markets…

April 02, 2019 | Johnson Har and Jayesh Peswani

The private credit market has recently captured the attention of the financial sector, with the number of institutions investing in private debt climbing significantly in recent years. 

Although most private credit investors are based in North America and Europe, recent research has found that Asian-based investors are making up an increasing proportion of the sector – nearly doubling from just 6% of active investors at the beginning of 2016 to 11% at the beginning of 2018. The growth within major Asian economies is equally impressive, with private debt investment growing by 36% in South Korea, 52% in China and a stunning 110% in India during the twelve months preceding March 2018.

Why the sudden increase in interest?

Private credit is very much top-of-mind in Asia, with astute investors looking to increase their allocations in this alternative asset class. The private credit market has seen strong growth in the US and EU in recent years, and this trend has carried over to limited partners and investors in Asia.

Asia-focused hedge funds are delivering underwhelming performance, with Bloomberg revealing that nearly 72 percent of funds that posted double-digit gains in 2017 entered into the red in 2018. Operating against the backdrop of a sluggish, low interest rate environment with a lack of SME funding, a number of fund managers are seeking alternative investments, diversifying beyond direct equity by entering the debt markets.

Faced with a number of the same challenges, asset owners, such as insurance companies and pension funds, are also looking to diversify their holdings into safer plays that still offer attractive upside potential.

In addition, given the volatility seen the current global economy—which many fear will persist in 2019—investors are angling towards more liquid investments, even in alternatives. Therefore traditional private equity type vehicles with longer lives of up to te...

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Keywords: Private Debt, Private Credit Market, Insurance Companies, Pension Funds, Credit Investment