Private credit takes off in Asia Pacific

Asia is finally joining the global rush for private credit lending with a stream of fund launches.

In Tan’s view, Asia’s appeal is twofold: since the continent is made up of many countries with differing regulatory regimes, investors are able to pick and choose which ones work for them. And while high interest rates and inflation are plaguing the West, Asia is considered a growth market.

“The beauty of having a pan-Asia Pacific strategy is that you can pick the best of breed in terms of opportunities and returns across Asia Pacific. You are not beholden to invest in only a single country and can, therefore, select the best risk adjusted returns from different markets,” says Tan.

Examples of Asia’s private credit boom can be found throughout the region.

In August, Indian firm Ask Private Wealth launched its first private credit fund. In June, Muzinich completed the final close for its first Asia Pacific-focused private credit fund with $500 million of commitments.

The following month, Singapore-based Indies Capital Partners raised approximately $15 million for its fourth credit fund, the Southeast Asia-focused Indies Special Opportunities IV. July also saw hedge fund RV Capital Management launch its first Indian performing private credit fund in an effort to access middle market corporate financing in India. The firm is targeting a fund size of 4 billion Indian rupee, or roughly $50 million.

Direct lending deals in APAC typically have a short tenure with contractual principal payments backed by underlying cashflow, over collateralisation, sponsor or holding company guarantees, according to Denny Goenawan, managing partner of Indies Capital Partners.

“We see increased investor appetite in private credit, particularly within Southeast Asia,” Goenawan says. “[The region] remains fairly diverse in terms of return profiles and what this essentially means is diversification.”

Tan says that, traditionally, large companies have been seen as safe bets, but data has shown that leverage is a better predictor for likelihood of default. “Therefore we avoid excessive leverage levels and seek over-collateralisation, structure priority or enhancements to protect our investments,” he says.

Tan believes the region’s banks are increasingly operating within rigid regulatory frameworks and can’t view investments on a pure risk adjusted return basis. “I think that’s why you’re seeing a lot more private credit players step in,” he says.