Assets under management in private debt in Asia-Pacific (APAC) have risen sixfold over the past decade to stand at almost US$100 billion.
There has been a boom in private credit and private debt funds being launched in Australia to the point that the spike is causing concern among research houses which are worried about fund managers jumping on the bandwagon with little experience.
These funds typically have high returns but higher fees, limited liquidity and less transparency about where the money is invested than public funds.
Research from Preqin in its Private Debt in APAC report has found APAC is rapidly catching up with North America and Europe in its usage of the asset, which has caused AUM to reach US$92.9 billion ($138 billion). This is up from US$15.4 billion in 2014.
However, assets in private debt still make up only a small proportion of private market assets at 3 per cent; Preqin said fundraising has faced challenges in the region.
Some 51 funds closed in 2021, but this fell to 40 in 2022 and down again to 25 in 2023, and the aggregate capital raised by these funds fell from US$15.1 billion in 2021 to US$5 billion last year.
The only fund to close in 2024 so far is the Tor Asia Credit Opportunity Master Fund III run by Tor Investment Management, a direct lending fund investing in blended and opportunistic debt which raised US$311 million. This is far smaller than the largest close of the last five years, which is an Australasian direct lending – senior debt fund run by PAG, called PAG Loan Fund, that closed at US$2.6 billion in June 2022.
Expanding on this, the firm’s report said: “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.”
Harsha Narayan, lead author of the Preqin report, said: “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.”
