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Private Credit: A growing alternative to conventional lending in APAC

09 June 2022

Apex’s Regional Managing Director APAC, Valerie Mantot Groene recently chaired the Private Debt Investor APAC Forum 2022 held in Singapore. In this blog, she shares some of the key takeaways from the event including how market volatility has shifted investor appetites and has uncovered opportunities in Asia’s private credit markets.

Private debt looks set to continue its journey into the mainstream in the APAC region as non-bank lending shows its essentiality in the current global economic environment. According to PitchBook data, private debt funds raised over $190 billion in 2021 with an AuM of $1.3 trillion, the busiest year since 2017 and becoming the third-largest private market strategy by assets, behind private equity and venture capital.

However, the opportunity for private creditors to plug some of that funding gap left by banks has not been without its challenges, particularly over the past 18 months. As an asset class in APAC, returns still remains exposed to inflation, macroeconomic development, geopolitical events and FX fluctuations. From a business opportunity perspective, the special situations, credit opportunities and distressed debt universe is the one that most benefitted from recent market conditions, perhaps unsurprisingly.

Coming of age

In APAC, we are currently seeing twin trends of the institutionalization of the investors in Private Credit funds as well as the democratization of the access these funds for retail investors.

The pandemic-induced flight to quality saw LPs turning to experienced managers, meaning that larger assets under management (AuM) volumes are concentrated among fewer players. Historically, fund managers competing for assets in private debt largely consisted of North American private equity firms, such as Blackstone Group, KKR, and Oaktree Capital Management. But in recent times, more mainstream fund groups from across the globe, as well as local managers in APAC are diversifying into the asset class.

Barriers to access to private credit funds are being dismantled, with retail investors now being offered the opportunity to invest in credit funds through funding platforms.

Hotspots of investment activity

We are seeing clearly defined ‘hotspots’ of concentrated private debt activity, both geographically and by sector.

China, India and Australia continue to be the most mature and active markets for the raising and deployment of private debt funds. Meanwhile, the sectors attracting most investment from private debt strategies are those which proved resilient in the pandemic such as healthcare and technology. We anticipate these will continue to heat up, as private debt investors become anxious to deploy some $457m of dry powder.

High investor expectations

The fundraising process has become more protracted, with funds spending more time in market before closing successfully, and the Covid pandemic has also seen many LPs take a more cautious approach by turning to more experienced managers, rather than smaller or newer players, resulting in larger AUM volumes being concentrated among fewer players.

LP’s expectations from Private Credit Funds remain sky high in various regards, not only in terms of performance but also transparency & reporting, ESG credentials and opportunities for co-investments. These expectations are similar to those that they hold for other, more mature alternative asset classes. As a result, whether you are a fund diversifying into private credit strategies, you must be prepared, with the help of your service provider to offer the standards of enhanced fund reporting and compliance that you would for any other private markets fund.

Outlook

We look forward to supporting the continued growth of Private Credit in APAC as the global managers of these funds diversify and we see the emergence of local champions in the region.

To find out how Apex Group can help you set up or manage your private debt fund, please contact us.

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