Private Credit: Poised For Growth

Flexible financing solutions are attracting issuers and investors to Asia-Pacific’s private credit market.

With concerns over tariffs and trade fragmentation fading—at least for the present—digitalization and energy transition driving new capital investment, and a host of big lenders poised to enter the region, observers are predicting a big year for private credit in Asia-Pacific.

Michel Lowy, co-founder and CEO of Hong Kong-based global banking and asset management group SC Lowy, is especially bullish. “This year will mark the early phase of a new multi-year allocation cycle into Asia,” he notes, predicting that private credit growth there in 2026 will outpace all other regions globally, characterized by wider, more specialized, and more compelling opportunities than in prior periods.

Momentum has been growing steadily for the past few years; a November report from the Alternative Investment Management Association’s private credit affiliate, the Alternative Credit Council, co-authored by Simmons & Simmons, EY, and Broadridge, projects APAC private credit issuance to grow from $59 billion in 2024 to $92 billion by 2027.

While the APAC market covers over 50 jurisdictions, each with a distinctive regulatory, legal and economic framework, the report notes multiple drivers of growth, including an increasing demand for infrastructure financing, an expanding middle class, and rapid urbanization. “The ability of private credit to provide tailored, flexible financing solutions positions it as a critical enabler of growth for businesses across the region,” the authors conclude.

The market’s growth momentum has benefited from US President Trump’s visit last October to the ASEAN summit and his meeting that month in South Korea with China’s President Xi Jinping. The resulting US-Korea investment accord and US-China framework deal rolling back select tariffs, alongside an upgraded ASEAN-China free trade agreement, eased policy uncertainty and improved cross-border visibility for corporates and investors, placing Asia center stage after months of uncertainty.

“This year will mark the early phase of a new multi-year allocation cycle into Asia.”

Michel Lowy, SC Lowy

“Asia’s private credit market is poised for robust growth in 2026, driven by needs in the region as well as the search for yield and diversification from abroad, given US and European market saturation in the private credit arena,” says Sally Yim, managing director at Moody’s Ratings in Hong Kong. “Structural strengths, including sustained economic expansion, regulatory enhancements, and rising demand for flexible financing, position the region as a key area of opportunity for private credit, particularly in Australia, Japan, and India.”

Lowy expects Asian private credit to broaden beyond these three core markets to embrace South Korea, Malaysia, Thailand, and other parts of Southeast Asia.

Industry Spread

“Demand in 2026 will be concentrated in capital-intensive sectors from which commercial banks have retreated thanks to tighter regulation and constrained balance sheets. Real estate will be a core driver, particularly in Australia, South Korea, India, Hong Kong, and Southeast Asia, benefiting from strong demand for development finance, bridge loans, and transitional capital. “Issuers and borrowers in the sector are increasingly utilizing public and private funding markets to meet ever-more complex capital needs,” says Lowy.

“Real estate remains the largest driver as banks retreat from riskier development loans, creating a funding gap for construction, refinancing, and bridge financing. Private lenders are stepping in with flexible structures such as mezzanine and junior loans, particularly in markets like Australia, Japan, and Hong Kong,” says Yim.

“Private credit is becoming a critical source of funding for companies in Australia, particularly those with weaker credit profiles that find it hard to secure bank loans or issue bonds. Meanwhile in Japan, demand for fund finance, or bank loans to private funds, will rise as private funds expand, driven by corporate restructuring, more startups, and demographic changes spurring M&A activity.”

Rapid digitalization is driving investment in Asian data centers. Here, blended public-private funding is becoming the norm, as well as for fulfilment networks and telecom infrastructure that require the long-term flexible financing on offer in the private market.

“Energy transition is gaining traction in the region as netzero targets outpace bank lending capacity, pushing investors in renewables, battery storage, grid updates, and distributed energy solutions to explore private credit sources. Add to this healthcare, pharmaceuticals, and industrial and manufacturing activity in South Korea, India, and ASEAN, and demand for private credit in Asia is poised to demonstrate its diversity and depth,” says Lowy.

SWFS, Family Offices Pile In

An explicit marker of the direction of travel for Asian private credit appeared last month, when KKR closed its second Asia private credit fund at $2.5 billion, “roughly doubling in size its prior regional private credit fund,” Yim notes.

Last April, Goldman Sachs Asset Management (GSAM) registered West Street Asia Private Credit Advisors in Luxembourg, with a focus on Asia-Pacific private credit. In 2024, GSAM secured a $1 billion mandate from Mubadala Investment Company, Abu Dhabi’s sovereign wealth fund (SWF), to coinvest in private credit opportunities across the region.

The increasing presence of SWFs, both from APAC itself and the Middle East, will be a theme in the region’s private credit activity this year, as will demand from regional family offices in Hong Kong and Singapore. Retail participation, too, is expected to grow via dedicated private-credit funds and ETFs. Temasek Holdings, Singapore’s sovereign wealth fund, is now the eleventh largest global investor in private credit, holding a $22 billion portfolio, or 7% of its total investments, according to Private Debt Investor.

As the sector grows and becomes more complex, however, investors are likely to become more discerning.

“We believe that overall, [APAC private credit] will remain resilient despite geopolitical or macro headwinds, but that performance differentiation will increase between managers,” says Lowy. “It is especially important in the current environment to avoid sectors that tend to be too crowded. You also need to build transactions with real downside protection from quality collateral as well as position yourself in the capital structure in ways that allow you to be in the driver’s seat.”

But the region also offers flexibility to lenders in a market where bank credit has receded thanks to regulatory strictures such as Basel II and the balance sheet conservatism it has fostered, rendering par refinancing scarce and loan-to-value ratios prohibitively low. Hefty spreads over floating rate benchmarks on APAC private credit are easily available; lenders typically aim for 8% to 15% annual rates of return in the region’s real estate markets and 16% to 20% in the distressed debt refinancing sector, even when hedged back to US dollars.

SC Lowy’s dedicated APAC private credit funds—the first launched in 2018, followed by a second in 2020 and the most recent in 2023—offer insight into the product’s dynamics, including short duration and swift exit. The 2018 and 2020 vintages recycled 1.5 times and 1.9 times commitments, respectively, with short maturities of around one to two years and real cash exits for gross internal rates of return of 17% to 18% following the “harvest” period of around three years from investment.

The 2023 fund, meanwhile, has booked $917 million of investments and awaits harvest.