Press Release: Private credit to play key role in Asia’s economic rebound
Published: 27 August 2020
Private credit to play key role in Asia’s economic rebound
- New report provides a roadmap for private credit investors in Asia
- Sector is laying foundations for the next stage of its development
- Bespoke approach to lending is supporting growth and job creation in the region
HONG KONG/SINGAPORE Thursday 27 August 2020: The Alternative Credit Council (ACC) in partnership with international law firm Simmons & Simmons and global professional services leader EY has launched the ACC’s first ‘Private Credit in Asia’ report.
This paper provides a roadmap for investors and policymakers seeking to understand the private credit market in Asia and its direction of travel. The report is based on ACC data and a series of in-depth interviews with industry leaders.
The publication outlines how Asian private credit managers are navigating the unique challenges of investing in the region and how the asset class will play a pivotal role in the region’s economic rebound from COVID-19.
- Investor appetite for differentiated returns, bank retrenchment and borrower demand for bespoke finance solutions are fuelling the growth of private credit in Asia.
- Private credit is facilitating inward investment into Asia - 77% of private credit capital raised comes from non-Asian investors. These investors include institutional investors, family offices and HNWIs.
- Private credit in Asia currently finances a relatively small proportion of the economy and there is significant headroom for growth. The emergence of newer business models, growth of SMEs and an increasing need for infrastructure investment in the region will see private credit play a greater role in the financing of the economy.
- Asian private credit managers combine lending to SMEs and mid-market businesses with a wider spectrum of debt strategies. These mixed and opportunistic strategies typically target returns between 13-20%.
- Almost three quarters of private credit transactions are originated through direct relationships with a borrower, or through consultants and industry relationships. Borrowers are also increasingly attracted to the speed and flexibility private credit managers can offer. Only 10% of transactions are sponsored.
- ESG and responsible investment considerations are central to the risk management and due diligence employed by lenders in the region. Government policy to encourage more sustainable business models, technologies, and consumption patterns in Asia is likely to create greater demand for private capital.
- The fragmented regulatory environment in Asia means that investment expertise, knowledge of local regulatory frameworks and deal structuring are central to successful lending strategies in the region.
- Reform of regulatory frameworks in some markets is encouraging the development of private credit in the region. Reducing barriers to private credit across the region will support the sector’s ability to support business growth, innovation and job creation.
Jiří Król, Global Head of the Alternative Credit Council commented, “The APAC region is seeing strong interest from private credit investors and managers alike. The early signs received so far, indicate that the industry is likely to play a major role in the regional recovery as banks continue to retrench from multiple business lines. Those who will be able to manage the diversity of local jurisdictions are likely to reap significant benefits. We are excited to be part of this amazing growth story and hope to provide useful resources to aid the industry’s development.”
Jolyon Ellwood-Russell, Partner, Simmons & Simmons added, “There is no doubt that when it comes to lending in Asia, there are plenty of challenges resulting from the sheer diversity of the region. For example, in areas such as licensing, enforcement of collateral and tax. That said, the characteristics of private credit in Asia are that it tends to be more bi-lateral, bespoke and flexible, which means that it is becoming increasingly attractive to borrowers as a means of debt finance. With the increase of bank disintermediation and retrenchment, private credit will play an increasing role in financing the future growth in Asia.
“On the investor side, we are seeing huge interest from global fund manager clients wanting to establish Asian strategies or existing Asian managers growing their AUM and effectively deploying their dry powder into Asian assets.”
Alpha Tsang, Partner at EY commented, “Over the past decade, private credit has evolved from an opportunistic strategy to a sustainable source of capital for enterprises in the region. As the sector continues to institutionalise and scale, Asian private credit presents a tremendous opportunity for investors looking for risk adjusted returns that are diversified, and downside protected. Complexities in origination and sourcing, talent management, operations and reporting, tax, regulatory, and legal are high barriers to entry to new entrants, but also provide new opportunities for those firms that are able to skilfully manage.”
For interviews with Simmons & Simmons, please contact:
T +852 3468 5207
For interviews with EY, please contact:
EY Asia-Pacific Public Relations Leader, Financial Services
T +852 9666 3489
E [email protected]
For interviews with the Alternative Credit Council, please contact:
Laura Morrissey, Emily Baker
Hume Brophy T: +44 7772124299
Notes to editors
About the ACC
The Alternative Credit Council (ACC) is the global body representing asset management firms in the private credit and direct lending space. It currently represents over 170 members that manage $400bn of private credit assets. The ACC is an affiliate of AIMA (the Alternative Investment Management Association). It is governed by its own board which ultimately reports to the AIMA Council. ACC members provide an important source of funding to the economy. They finance mid-market corporates, SMEs, commercial and residential real estate developments, infrastructure and the trade and receivables business. The ACC provides guidance on policy and regulatory matters, supports wider advocacy and educational efforts and produces industry research to strengthen the sector's sustainability and economic and financial benefits. Alternative credit, private debt or direct lending funds have grown substantially in recent years and are becoming a key segment of the asset management industry. The ACC seeks to explain the value of private credit by highlighting the sector's wider economic and financial stability benefits.
The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with more than 2,000 corporate members in over 60 countries. AIMA’s fund manager members collectively manage more than $2 trillion in hedge fund or private credit assets. AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry. AIMA set up the Alternative Credit Council (ACC) to help firms focused in the private credit and direct lending space. AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialised educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors). For further information, please visit AIMA’s website, www.aima.org.
About Simmons & Simmons
- We are a leading international law firm with around 280 partners and 1300 staff working in Asia, Europe and the Middle East across 23 offices in 19 countries.
- Our industry sectors are: Asset Management & Investment Funds, Financial Institutions, Life Sciences and Telecoms, Media & Technology (TMT). We also focus on the Energy & Infrastructure market through our international projects and construction teams.
- Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name “Simmons & Simmons” or one or more of those practices as the context requires. The word “partner” refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP’s affiliated practices. For further information on the international entities and practices, refer to simmons-simmons.com/legalresp.
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