Credit funds fill the Private Equity and traditional lending gap in Asia
Ocorian, the specialist provider of fund, corporate and fiduciary services, says that the changing market conditions in China, and the collapsing property market, are having a huge impact on APAC and represent an opportunity for credit funds to step in where banks will not.
What are credit funds and how do they work?
Credit funds extend privately raised capital to corporates to fund expansion, growth or restructuring. Traditionally considered low-risk vehicles, in recent times credit funds have pursued more exotic and esoteric investments to provide greater returns for investors.
PE investment across Asia Pacific (APAC) was down 36% in the first half of 2023
Private equity (PE) was the powerhouse of investing in Asia, especially when it came to startups and tech ventures, however, in the current landscape PE has dwindled significantly with KPMG reporting that PE investment across Asia Pacific (APAC) was down 36% in the first half of 2023 to US$84.7 billion, down from the five-year high of US$243.9 billion of H2 2021.[1]
Credit funds fill the gap and push into the Asian market to provide greater returns for investors
Robin Harris, Ocorian’s Head of APAC, states: “2023 was characterised by an ongoing quest for returns, whether to outstrip inflation, or steal a march on cash holdings, which have enjoyed a productive couple of years.
“The search for returns inevitably leads more ambitious investors to choose asset classes outside the mainstream. Credit funds fit that bill. They have spotted the gap in financing brought about by the reduction in traditional bank financing and PE investment, and clearly feel returns are still there to be won, hence the push into the Asian market especially.”
The size of the private credit market in SE Asia & India rose by 50% between 2020 & mid-2022
The Economist notes that the size of the private credit market in South-East Asia and India rose by around 50% between 2020 and mid-2022, to almost $80bn,[2] a trend that is well timed, according to Robin:
“In Asia the timing of this shift couldn’t be better. The changing markets mean that traditional forms of borrowing and fundraising have become less viable, less productive, or both.
“Banks would of course be the traditional providers of debt to corporates, but over 2022 and 2023 they have pulled back significantly from lending money to finance growth. This has impacted small and medium enterprises (SMEs) especially, as they cannot readily access alternative forms of finance.”
But it’s not just SMEs. Globally, blue-chip brands like AT&T, PayPal and Air France-KLM have all used private credit for financing, according to The Financial Times.[3]
Credit funds make funding available far more quickly than traditional debt providers
Ocorian’s Harris believes credit funds can make funding available far more quickly, and with less stringent requirements than traditional debt providers, which is appealing to many corporates.
“2024 should see a further increase in the prevalence of credit funds as a means of corporate financing in Asian markets. If it is the only game in town, it’ll be well worth watching how many more corporations want to play.”
Ocorian’s credit fund administration services
Ocorian is a leading provider of credit fund administration services and versatile SPV structures and solutions. From straightforward holding structures to multi-domiciled sub-fund SPVs, Ocorian’s teams have the regulatory knowledge and experience in managing complex structures across multiple jurisdictions. Find out more about how Ocorian’s expert professional services team solve complex problems for their clients.
