Private Debt Investors Turn to Asia

As private debt markets in Western countries grow more crowded and expensive, some investors are beginning to seek opportunities in the Far East, according to Preqin.

Illustration by II

Illustration by II

Asia could be the “next frontier” for private debt investors, at least according to industry tracker Preqin.

The private markets data provider said Thursday that multiple signs point to a growing appetite among institutional investors for private debt opportunities in Asia. Last year, for instance, the region’s private debt funds raised $6.4 billion – the second highest total to date, according to Preqin. And further fundraising seems likely in 2018, with 927 institutions currently seeking to invest in Asian private debt.

Of these investors expressing an interest in Asian private debt, just 12 percent were locals. The majority, or 69 percent, were from North America, with another 15 percent based in Europe.

While private debt investors have generally stuck to developed markets in North America and Europe, the maturation of those markets could lead more investors to expand their horizons. Tom Carr, head of private debt products at Preqin, said Asian credit opportunities have so far “struggled to gain traction,” but noted that “conditions are favorable for more attention to be paid to the region.”

For instance, nearly a third of private debt investors surveyed by Preqin at the end of 2017 believed Asia held the best investment opportunities for the year ahead, up from just 13 percent in June 2017.

“This may be in part a reaction to the consensus that markets in North America and Europe are approaching a pricing peak, and given the long timeframes of private debt vehicles, there may be an expectation that opportunities in Asia will multiply in coming years,” Carr said in a statement.

[II Deep Dive: Private Debt: America vs. Europe]

As of this month, there were 31 Asia-focused private debt funds in the market, seeking to raise a combined $11.3 billion. The largest is Shoreline Capital Management’s new distressed debt fund, which is targeting 10 billion Chinese Yuan ($1.56 billion) to invest in China.

While investor interest in Asian credit markets appears to be on the rise, Carr warned that the markets remains a “niche area” of the private debt industry – at least for the time being.

“Fund managers raising Asia-focused vehicles must expect to face a long and challenging fundraising process,” he said.