Executive Summary

• Asia’s private credit market is experiencing significant growth, with assets under management (AUM) doubling from 2014 to 2019 to around US$57 billion.
• This promising landscape has attracted global giants in private credit managment like Apollo, Blackstone, HPS, and Oaktree.
• The market's appeal lies in offering investors diversification, co-investment opportunities, attractive yields, and a buffer against potential default loss.
• With SMEs making up over 96% of all Asian businesses, the vast potential for growth in private credit is evident.
• Technological innovations and data-driven strategies are empowering private credit players to outperform, presenting a compelling case for investing in this sector.

Introduction: The Dawn of Asia's Private Credit Era

The rise of private credit in Asia is transforming the investment landscape, attracting the attention of global investment powerhouses.

From Apollo and Blackstone to HPS and Oaktree, these leading firms are establishing and expanding their private credit capabilities in strategic locations like Singapore, seeking to capitalise on the growing opportunities in this region [1].

The Underpinning Strength of Private Credit

Private credit's growing popularity among investors is underpinned by its unique value proposition.

The Asian private credit market offers potential for diversification vis-à-vis other asset classes, attractive yields with buffers against potential default losses, and structural protections.

Investors also find the co-investment opportunities with sponsors and general partners (GPs) particularly appealing, offering an additional avenue for enhancing returns.

Navigating the SME Financing Gap

One of the driving factors behind the rise of private credit in Asia is the significant financing gap faced by SMEs, which constitute over 96 per cent of all businesses in the region [2].

Conventional banking institutions, constrained by regulatory requirements and risk-averse lending criteria, often leave these SMEs underserved.

On the other hand, private credit providers, unbound by such limitations, have stepped in to fill this void, becoming a crucial funding source for these businesses. As a result, they have unlocked immense potential for growth in the sector.

Technology: The Private Credit Edge

The role of technology in revolutionising the private credit landscape cannot be overstated.

Private credit providers are leveraging technology and data-driven analysis to outperform traditional lenders. These tools enable them to make better-informed decisions, continually monitor their investments, manage risks more efficiently, and consequently, deliver higher returns

Maturation of Asia’s Private Credit Ecosystem

Despite its nascent stage compared to the Western counterparts, Asia's private credit ecosystem has significantly matured over the last decade. It has witnessed impressive growth, with assets under management (AUM) doubling between 2014 and 2019 to around US$57 billion [3].

This remarkable growth reflects not only market demand but also the sophistication of private credit firms in the region. They have strategically navigated through various avenues like direct lending, distressed debt, special situations, mezzanine debt, and derivative instruments, to provide tailored credit solutions.

Future Outlook: An Evolving Market

Despite the ongoing market volatility, the outlook for private credit’s continued growth in Asia is optimistic. Borrowers' heightened awareness of private credit, coupled with the sophistication of private credit firms in crafting timely and tailored credit support strategies, promises a promising future.

With a demonstrated capacity to finance larger deals while maintaining prudent fund diversification parameters, the market is also witnessing innovative approaches like unitranche financing.

Conclusion: Capitalizing on the Private Credit Renaissance with Bluejay

As we observe the continued evolution and maturation of Asia's private credit ecosystem, it's evident that this financial sector is not merely thriving—it's redefining the way businesses and investors engage with capital allocation. Amid the complex economic landscape, it's become increasingly crucial to understand and navigate the dynamics of private credit markets.

References

[1] https://www.mas.gov.sg/news/speeches/2023/growth-opportunities-of-alternative-investment-industry-and-its-ecosystem-in-singapore#6-footnote-9

[2] https://www.adb.org/publications/role-smes-asia-and-their-difficulties-accessing-finance

[3] https://www.afr.com/companies/financial-services/private-markets-to-double-to-28-trillion-by-2027-20221005-p5bnga