‘Private credit in APAC is quite underserved’

Private credit in APAC has been notably underserved, especially when benchmarked against global standards.

The Asia-Pacific (APAC) region remains a largely untapped market after institutional investors globally pivot towards private credit to diversify and safeguard their exposures.

Patrick Boocock, CEO for Private Equity Alternative Assets at CapitaLand Investment, said that private credit in APAC has been growing due to tightened regulatory requirements which slows down the pace of lending.

“There's some really significant tailwind supporting the growth of private credit in Asia,” he said, “One being the fact that commercial banks, both from a macro perspective, increased inflation, increased construction costs, etc., and also due to tightened regulatory requirements are starting to slow down the pace of lending, particularly in the commercial real estate space.”

He added that another factor may be the recalibration of real estate prices, following the increased interest rates and refinancing across consumers, which affects opportunities for private credit.

“And then thirdly, in particular markets like Australia, we see continued demand for new products, we see a lot of development opportunities, particularly in sectors like residential where Australia has a significant housing shortage. So I think all of this plays very, very well into a diversification strategy for investors, again, giving credit strong downside protection and stable yields,” he explained.

Boocock said that private credit is an essential part of a diversified investment portfolio given the current economic environment, tighter liquidity and increased interest rates which makes participating in private credit an attractive investment opportunity.

He further elaborated on the three core benefits of private credit: robust risk-adjusted cash flows, excellent downside protection, and minimal exposure to the occasionally volatile public markets.

“Number one, obviously strong risk adjusted and predictable cash flows. Two, great downside protection is given if you have a first last position ahead of you. And of course, given that it is a private investment, you have less exposure to the public market markets, which we've seen some recent volatility,” Boocock explained.

He believes that the size of the private credit market will not decrease in the coming years, assuming that the global economy continues to grow at a modest pace.

“Now, of course, there are always periods of economic volatility where things will slow down, we saw that during COVID, but on a long term trend, I think the opportunity for private credit is quite substantial,” he ended.