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Volatility in US prompts investors to consider Asia private credit exposure
by Lisa Fu
Asia accounts for half the world’s population and two-thirds of GDP growth, but so far it accounts for only a small portion of global private credit. With investors seeking diversity for their holdings, that may be beginning to change.
“The need to diversify is top of mind for any CIO. It’s not just country or tariffs, it’s currency as well,” said SJ Lim, a managing director and portfolio manager of Asia Private Credit at KKR. “I think we see some of that in conversations with LPs and interest from clients who historically focused more on the US, and to a lesser extent, Europe.”
Recent interest around private credit in Asia is driven partly by geopolitical uncertainty — the go-to euphemism for the whipsawing trade policies of Trump 2.0 — as well as worries about inflation and central bank independence.
“Mounting US volatility, spurred by geopolitical tensions, tariff risks and tighter financial conditions, is prompting allocators to seek exposure to markets less exposed to these headwinds,” said SC Lowy portfolio manager Soo Cheon Lee. “Asia-Pacific has maintained relative macro stability and continues to deliver attractive risk-adjusted returns.”
Asia-Pacific has maintained relative macro stability
Soo Cheon Lee
Portfolio manager
SC Lowy
Given their similarities to the US and Europe, Australia and New Zealand have been the go-to countries for private credit shops. Now other countries in the Asia-Pacific region — such as Japan, Korea, Singapore, Hong Kong and Thailand — are creating opportunities, according to Mark Glengarry, head of APAC for private credit strategies at Blackstone Credit and Insurance. India is also becoming relatively fertile ground.
One of the biggest challenges for private credit in Asia is that the region is highly weighted towards the banking system. Some 80%-90% of credit is provided by banks, according to market participants. But private debt is beginning to grow as both sponsors and corporates recognise the benefits of more flexible financing.
“The best strategies for private credit in the region are those that offer flexible financing solutions that can complement the abundant, but less nimble, local bank capital,” said Andrew Schantz, partner at Bain Capital.
Businesses are thinking about where to put capex or how to change their manufacturing blueprint given the uncertain tenor of the times, said KKR’s Lim. These good businesses and quality sponsors should already have access to bank financing, but they often want more flexibility or a partnership element —things banks are not necessarily best positioned to provide.
Global private equity sponsors investing in the region are seeking private financing after becoming familiar with the strategy in the US and Europe. Meanwhile, local private equity sponsors have acquired a better understanding of private debt, Barings head of APAC private credit Justin Hooley said.
Barings invests in “developed APAC” direct lending markets, such as Australia, New Zealand, Singapore, Hong Kong, Taiwan, Korea and Japan. These countries have economies that exhibit similar risk and return profiles to those in the US or Europe. They also have regulations and laws that are comparable to other developed markets, Hooley said.
The region’s largest economies — China and India — come with significant challenges. “It is very difficult to invest directly into Chinese corporate credit as a foreign investor,” said Jeffrey Griffiths, global head of private credit at Campbell Lutyens.
India is easier, but foreign investors still require expensive currency hedging, or need a dedicated allocation to the Indian rupee, which faces depreciation against the dollar, said Griffiths.
Nevertheless, the payoff in the region could be huge, said Lim. “You have so much concentration in the banking system... even a 5%, 10% shift, I think it’s good for the region. It’s our job as investors to find and build that next stage of the market.”
