Growing Interest in Private Credit Among Asian Investors and Family Offices

Asian investors and family offices are increasingly allocating funds to private credit, attracted by secured lending, potential equity participation, and low correlation with public market fixed income strategies.

Growing Interest in Private Credit Among Asian Investors and Family Offices

Asian investors and family offices in Asia are increasingly allocating their funds to private credit, driven by several key factors. The appeal of secured lending with strong covenants to medium-sized enterprises provides attractive alternatives to public bonds with potential equity participation. This growing trend is fueled by the high interest rates and a broader range of liquid investment options available in the market.

Growing Interest in Private Credit Among Asian Investors and Family Offices - -737458694

( Credit to: Asianinvestor )

The availability of open-ended funds that offer quarterly liquidity has made private credit more accessible to a wider range of investors. Previously, investors had to commit their funds for many years, but now they have more flexibility. This has expanded the sector beyond a select group of institutions and attracted affluent families and high-net-worth individuals who previously found it challenging to access this asset class.

Private credit is expanding its appeal among wealthy individuals in Asia. Traditionally, this asset class appealed to income-seeking investors, particularly those looking to construct retirement income. However, with the increasing earning power of private credit, investors seeking capital appreciation are also showing interest. Private credit is seen as a good complement or diversifier for overall fixed income exposure, given its low correlation with public market fixed income strategies.

The Appeal of Secured Lending and Potential Equity Participation

One of the key reasons for the growing interest in private credit among Asian investors and family offices is the appeal of secured lending with potential equity participation. Andrew Sharrock, Chief Investment Officer of Landmark Family Office, highlights the attractiveness of secured lending with strong covenants to medium-sized enterprises. This type of lending offers direct alternatives to public bonds and allows investors to participate in potential equity gains.

For those unfamiliar with the sector, starting with small and medium enterprise (SME) lending secured by residential property is a common entry point. More sophisticated clients have options such as secured bridge financing, small invoice financing, or litigation strategies.

Chee Jiun Wen, Head of Private Markets and Alternatives at the Bank of Singapore, notes that private credit is expanding its appeal among wealthy individuals in Asia. Traditionally, this asset class appealed to income-seeking investors, particularly those looking to construct retirement income. However, with the increasing earning power of private credit, investors seeking capital appreciation are also showing interest. Private credit is seen as a good complement or diversifier for overall fixed income exposure, given its low correlation with public market fixed income strategies.

Increasing Accessibility and Flexibility in Private Credit

One key factor driving the popularity of private credit is the availability of open-ended funds that offer quarterly liquidity. Previously, investors had to commit their funds for many years, but now they have more flexibility. This has expanded the sector beyond a select group of institutions and attracted affluent families and high-net-worth individuals who previously found it challenging to access this asset class. Nancy Curtin, Global CIO at AlTi Tiedemann Global, emphasizes that the allure of private credit is now within reach, thanks to these semi-liquid opportunities provided by marquee credit managers.

The rise of private credit funds is filling the gap left by retreating banks, which have reduced lending in recent years. Medium-sized companies, faced with increasingly stringent requirements for bond issuance, are turning to private credit as an appealing alternative. Private credit offers flexible and tailored solutions to meet the diverse financing needs of these enterprises, explains Sky Kwah, Director of Investment Advisory at Raffles Family Office.

Promising Returns and Opportunities in Private Credit

According to Thibault Sandret, Head of Private Debt Research at bfinance, returns from private credit funds can range between 10% and 12% for leveraged funds and between 7% and 9% for unleveraged ones. As a result, there has been a surge in searches conducted by family offices and wealth managers in Asia, seeking to capitalize on these opportunities.

The real estate sector, in particular, has witnessed significant interest in private credit. Koichiro Obu, Head of Real Estate Research, Asia Pacific, at DWS, highlights that as traditional lenders in the APAC real estate debt markets tighten lending conditions, alternative lenders are seizing the opportunity to enter the market and access more attractive risk-adjusted returns relative to equity. This trend is expected to be prominent in countries like South Korea and Australia.

Looking ahead, the opportunities in private credit are set to grow. Daniel O’Donnell, Global Head of Alternative Investments at Citi Global Wealth, predicts that between $1 trillion and $1.5 trillion of commercial real estate loans will mature over the next two years. As regional banks pull back from lending, private capital will have the chance to step in and refinance these loans, creating further opportunities.

Conclusion

The growing interest in private credit among Asian investors and family offices is driven by the appeal of secured lending, potential equity participation, and the asset class’s low correlation with public market fixed income strategies. The availability of open-ended funds offering liquidity has made private credit more accessible, attracting a wider range of investors. As banks retreat from lending, private credit fills the gap, offering flexible and tailored financing solutions to medium-sized enterprises. With the potential for attractive returns, private credit is becoming an essential component of investment portfolios in Asia.

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