Assets under management in private debt in Asia-Pacific increased to $92.9 billion as of September 2023, according to new data from Preqin.
This represents an impressive sixfold surge over the past decade and a 2.5 times rise over the last five years.
“While regional banks dominate credit provision in APAC, their conservative lending standards often fail to meet the diverse financing needs of many businesses, representing an opportunity for private debt managers to highlight their services as a potentially better placed intermediate,” Preqin wrote in its latest Private Debt in APAC report.
“With its floating rate nature, the asset class is well positioned to deliver consistent income for investors in today’s high-interest rate environment. While investor interest has predominantly been in North America and Europe, the Asia-Pacific region is rapidly gaining recognition.”
However, the firm conceded that the region has faced challenges in recent years, including fund closures. Fund closures have, however, slowed with 51 reported in 2021, 40 in 2022, and 25 in 2023.
Aggregate capital raised by these funds also declined from almost $8 billion in 2022 to $5 billion in 2023, a third of the $15 billion raised in 2021.
Preqin said that part of the reason for this decline may stem from investor caution regarding the “relative nascency” of APAC private debt managers compared with their more established counterparts globally, and their track record in navigating a new market environment.
“The test for managers now is to demonstrate their ability to effectively manage risk in a higher interest rate environment, which can lead to increased default rates and more volatile credit conditions,” the firm said.
“The APAC private debt market is ripe with opportunities, and managers who overcome challenges related to investor perception and risk management can succeed in this evolving landscape.”
Looking more closely at the region, India and Japan-focused funds raised 31 per cent and 29 per cent of the total regional capital in 2024 by June, respectively.
Australia, meanwhile, has historically accounted for 0 per cent of all capital raised – aside from the 1 per cent contribution it made to APAC in 2019 – but this calendar year-to-date has seen Australia contribute 3 per cent of all capital raised in the region.
Moving to the proportion of funds by regional focus over this same period, Preqin revealed that Japan has taken the lead in the APAC region with 42 per cent of the total, followed by South Korea and India, with 25 per cent and 17 per cent funds, respectively.
Australia accounted for 8 per cent of APAC-focused funds, an improvement over the 0 per cent reading for 2023, and the peak of 3 per cent that Australia maintained over 2019 and 2020.
“Private debt AUM in APAC still represents only about 3 per cent of total private capital AUM in APAC and 5 per cent of global private debt AUM, indicating substantial room for further expansion. The region’s pressing need for financing could help fuel this expansion,” Preqin said.
Despite its relatively small size compared to global standards, private debt in the APAC is becoming more popular with assets under management more than doubling in five years, Preqin’s head of APAC and valuations, Angela Lai, has reiterated in the firms recent Alternatives in APAC Webinar.
Lai explained that in the APAC, traditional banks still dominate lending with investors turning to private debt as part of their “distressed strategies”. Conversely, in North America and Europe, “private debt can often compete with banks directly as a primary lender”.
Due to the higher proportion of high-risk strategies, Lai noted that Preqin’s performance forecast for private debt is higher in APAC than in other regions.
