Asia-based investors are piling into direct lending

By Daniel Lanyon on Monday 12 March 2018

Alternative Lending

Private debt’s rise in the developed markets seems to be spilling over into the fast paced economies of Asia.

Private debt’s rise in the developed markets seems to be spilling over into the fast paced economies of Asia.

Asia-based investors are becoming an increasingly prominent part of the private debt investor base, according to research from Preqin.

Representing just 6 per cent of active investors into direct lending and private debt assets at the start of 2016, the proportion of investors based in the region has grown to 9 per cent in January 2017 and 11 per cent at the beginning of 2018.

While the overall proportion remains small, the rate of growth is sharp. Over the past 12 months, the number of active private debt investors has increased by 36 per cent in South Korea, 52 per cent in China and 110 per cent in India.

The private debt industry has seen a steady increase in the number of investors active in the asset class in recent years as investors search for yeild.

At the start of 2018 there are 3,100 institutions investing in private debt, up from 2,400 at the start of the previous year and an increase of 1,200 from the start of 2016. Most of these investors are based in North America and Europe, which comprise 57 per cent and 24 per cent of active investors respectively.

India based investors rapid take up may be due to the Insolvency and Bankruptcy Code, Preqin says, which has opened up opportunities for domestic non-bank lenders.

Tom Carr, Head of Private Debt Products, said: “There has been sustained growth in the prominence of the private debt industry in recent years, and investors have increasingly looked to the asset class to provide an income stream and diversification option with strong risk-adjusted returns.”

“It is encouraging that there are now more than 3,100 institutions globally active in the industry, many of which approach the asset class not solely as an alternative to fixed income investments in a low interest rate environment, but as a part of either a private equity or even a standalone allocation.”

He says the growth in the proportion of global investors that are based in the re Asia may seem small but it belies growth of at least a third over the past 12 months among some of the major economies of the region.

“The number of private debt investors in India alone has doubled in the past 12 months, suggesting that Asia-based investors may eventually emerge as a more active constituent of the private debt investor universe,” he said.

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