Private debt investors turn to Asia

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

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

Of those investors expressing an interest in Asian private debt, only 12% were locals. The majority, 69%, were from North America, and 15% were based in Europe.

While private debt investors have generally confined themselves to the developed markets of North America and Europe, the maturation of these markets could cause more investors to broaden 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 given to the region.

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

“This may be partly a reaction to the consensus that markets in North America and Europe are approaching a price peak, and given the long lead times of private debt vehicles, we can expect that that the opportunities in Asia will multiply in the years to come,” Carr said in a statement.

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

This month, there were 31 Asia-focused private debt funds in the market, seeking to raise a total of $11.3 billion. The biggest 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 remain a “niche” in the private debt industry — at least for now.

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

Carol M. Barragan