According to Yahoo News, investing in Asian private credit can provide a premium over similar deals in Europe and the US, partly due to the lower supply of private debt capital in Asia, according to Brian Dillard, head of Asia credit at KKR in Hong Kong. In a recent report, KKR estimated that the ratio of private equity to private debt assets under management is 30.8 times for the Asia-Pacific region, compared to 5.2 times for the US and 3.5 times for Europe.
Dillard sees continued growth in private credit in Asia, as it is a significantly underpenetrated asset class. Companies in the region do not have the same access to capital as their competitors in the US and Europe, but Dillard believes this will change over time. Despite an increase in fundraising for private credit, assets under management in Asia have decreased as a share of global private credit over the last five years, from 8% to 6%.
The demand for private credit in Asia is strong, and the relatively low amount of private credit dedicated to the region results in a return premium compared to the US and Europe. This premium can range from 50 to 100 basis points for an Australian sponsor-backed direct lending transaction, up to 4 to 5 percentage points for something further down the capital structure in a Southeast Asian jurisdiction. On average, the premium is about 2 to 3 percentage points across Asia.
The growing demand for private credit in Asia is due to businesses becoming larger and more geographically diverse, leading to an expansion in the demand for different types of capital. Additionally, private equity in Asia is now double the size of private equity in Europe, but the private debt market is almost four and a half times smaller.
Bernice
