With 2022 global private credit fundraising matching a record-setting 2021, 2023 maintains growth at less accelerated rates. Private credit remains a key private market investment strategy, after infrastructure and venture capital, as investors increasingly seek out yield, better risk diversification, and co-investment opportunities.

According to Preqin, total private debt assets are expected to almost double from $1.2 trillion to $2.3 trillion by 2027.¹ Although the overwhelming majority of these assets are managed out of North America and Europe, the private debt industry in Asia-Pacific is catching up.

Reports show that private debt assets under management (AUM) in Asia-Pacific stood at $95 billion (as of September 2022), a 28% jump from December 2021,² and shows no sign of slowing down.

The volume of investable assets in Asia-Pacific is growing exponentially, especially in markets such as Singapore and Hong Kong, where there has been a sizeable increase in the number of private wealth offices, as well as high-net-worth and mass affluent individuals.

With more private debt managers embracing retailisation, the appeal of Asia-Pacific is only going to get stronger.

Global interest rate volatility and the need for market stability

Financial markets are facing a number of challenging headwinds, including rising interest rates and high inflation. Private debt is uniquely placed to manage these risks, however.

Firstly, private debt funds normally hold floating-rate loans, which are attractive in a rising interest-rate environment. Private assets also typically have less volatility and correlation risk, as they are not publicly traded. Finally, the strong covenants at private debt funds mean managers have robust downside protection mechanisms in place should markets go sour.³

In Asia-Pacific, markets remain on edge following a spate of Chinese corporate defaults. JPMorgan notes that Chinese property companies are expected to account for nearly 40% of emerging market corporate high yield defaults this year.⁴

As an asset class, Asia-Pacific private debt is well positioned to withstand the tough conditions. Although what happens to China’s economy will have ripple effects for the rest of Asia-Pacific, some managers are already spotting distressed opportunities.

Digitalisation provides a spark for the industry

The inherent complexity of managing portfolios in private debt has always necessitated a basic level of digital adoption, especially at scale. Private debt is attractive for investors and borrowers because of its bespoke nature, but most importantly, its yield.

Consider the complexity of the data model required to manage a portfolio consisting of many loans. At its simplest level, it will include loan facilities, various maturity timelines, bespoke repayment schedules, shifting interest rates, collateral details, covenants, and issuance jurisdiction specifics.

Beyond the asset class itself, managers require data and technology models to account for regular financial disclosures of borrowers, compliance information, portfolio-level accounting, liquidity management analytics, and the aggregation of fund performance data for investor reporting.

The prerequisite data complexity impacts portfolio managers and investor confidence alike, whose lynchpin is a robust technology stack.

Although fund managers across Asia recognize this digital dependency, many new entrants still fail to appreciate just how complex and multi-dimensional their operational workflows truly are. In fact, many private debt firms in Asia are still heavily reliant on manual processes and Excel.

In today’s turbulent markets, depending on Excel is very risky, and could be off-putting for some investors. Increasingly, managers are moving away from Excel to better systems, including infrastructure that is cloud-based and scalable, as they look to gain a competitive advantage over their peers.

Moving to cloud-based solutions allows firms to obtain near real-time transparency and better automation. This strategy could also help them incorporate sophisticated data modelling techniques into their operating processes. These capabilities include scenario analysis tools that allow managers to calculate the impact of various scenarios (e.g., rising rates, increase in loan defaults) on their portfolios and cash flows.

It is with this in mind that Broadridge continues to enhance its own unified Portfolio Management for Private Debt platform to help lower the barriers to digital transformation at scale across the front, middle, and back offices in support of the entire investment lifecycle.

Broadridge stands out in today’s competitive environment by developing fast, flexible, and dynamic portfolio solutions to cut through the noise and focus on what matters.

What is next for private debt in Asia-Pacific?

The private debt industry in Asia-Pacific is maturing, especially as more banks in the region continue to scale back their lending to SMEs.

The heterogeneous nature of the countries in Asia presents an increasingly attractive source of opportunities for private debt fund managers to fill the gap with bespoke lending solutions, across diverse geographies and industries.

However, the lack of standardization could pose some challenges in other areas. Any regulatory changes across Asia will not take a homogenous approach to rulemaking, unlike in the EU, which could make life more complicated for private debt managers.

Private debt funds in Asia are also becoming more diverse and sophisticated. Mainstay private debt strategies like direct lending, mezzanine, distressed debt, and special situations will still garner interest, and growth is expected in niche areas like structured financing and asset-backed lending. On the back of this, the lines between traditional and non-traditional lenders will become increasingly blurred, as they have over the years in Europe and North America.

And finally, the technology tools being leveraged in the portfolio management process will be further enriched – simplifying operating models and enhancing decision-making. Next-generation technologies are already being deployed into product solutions today, improving data visualization, deepening predictive scenario analysis capabilities, and automating processes.

As these emerging technologies advance, Broadridge is continuing to investigate how such innovations translate into tangible solutions for our clients. The firms of tomorrow will see the traditional functional lines of front, middle, and back office give way to structures that encourage much closer active inter-departmental collaboration. Front-office sourcing of new capital will increasingly rely on the accuracy of inter-departmental communications across middle and back-office personnel, especially over a complex data model for the asset class.

Taken altogether, the future of private debt in Asia-Pacific looks bright. Whether fundraising for new funds, lending capital to borrowers, or proactively managing a comprehensive portfolio of loans, choosing a technology partner that keeps you ‘Ready for Next’ will be a key enabler to maximizing success in this booming region.

1. Preqin – December 14, 2022 –Brisk fundraising for private debt in 2022 – Preqin Global Report 2023
2. Wealth Briefing Asia –June 23, 2023 –Asia Pacific private debt market has big growth potential; rates cause headwinds - Preqin
3. Blackstone – October 4 , 2022 –Private credit investing in rising rate environments
4. Reuters – August 15, 2023 –J.P. Morgan ramps up EM default rate forecast amid China property woes