Asia’s fast-growing private credit market attracts new and more players driven largely by the financing needs of small to medium-sized corporates which are increasingly looking to private credit for their funding needs.

Private credit’s continued growth in Asia’s debt financing scene looks set to continue unabated despite market volatility. The entrance of new players into the private credit space, most recently, the collaboration of Tikehau Capital and UOB-Kay Hian, speaks volumes of borrowers’ awareness of private credit firms that can provide them with timely and tailored credit support.

In a joint announcement early this week, global alternative asset management group Tikehau Capital and Southeast Asia’s largest brokerage UOB-Kay Hian disclosed the launch of a new private credit strategy that will see each of the partners contribute US$50 million in capital to the strategy.

Growth, Working Capital, Refinancing

The new private credit strategy seeks to provide financing to mid-sized corporates across Asia Pacific, the companies said in a recent statement. The focus will be on growth, working capital, and refinancing lending to borrowers in resilient and defensive industries.

Tikehau Capital brings to the partnership strong global institutional relationships and an extensive track record in the private credit space, while UOB-Kay Hian offers strong local networks. Tikahau Capital currently dedicates €17 billion to private debt strategies.

Private Credit Under-represented in Asia

According to the International Monetary Fund (IMF) and Preqin Pro, data from 2023 indicated that Asia’s allocation to private credit remains under-represented. While Asia contributed 36 percent to global GDP, the region comprises only 7 percent of global private credit assets under management. This implies that Asia’s private credit market has significant growth potential.

Private credit has seen unprecedented growth in the past decade from US$320 billion in 2010 to US$875 billion in 2020, according to Preqin Pro. It is now the third largest asset class in the alternatives industry, following closely on the heels of private equity and real estate.

Hitting $1.5 Trillion in 2025

According to data gathered by law firm Harneys, the total asset under management of private credit is expected to hit US$1.5 trillion in 2025 based on the 11.4 percent compound annual growth rate of private credit as of the end of 2020.

The recent growth in fund size is testament to private credit’s capacity to finance larger deals while maintaining prudent fund diversification parameters, Harneys noted. «It has also enabled innovative approaches to better meet borrower needs, including the emergence of unitranche transaction where the lender issues a single credit instrument in replacement of a more complex capital structure that would subdivide the borrowed amount into junior and senior tranches of debt,» Harneys said in a commentary.

Good Addition to a Mature Investment Portfolio

The difficulty in securing bank loans is one of the reasons for the demand for private credit from small and medium-sized companies. Private credit providers, less constrained by regulations, have more flexibility in their lending criteria compared to banks.

From an investment perspective, private credit can be a good addition to a mature investment portfolio, due to the downside protection that private credit offers through an attractive risk-return profile and diversification benefits, Harneys said. Private credit also offers the flexibility to negotiate for bespoke lender protection, lower volatility and is resilient from its income-generating abilities.