Flexible financing solutions attract issuers and investors in the Asia-Pacific private debt market.
As concerns over tariffs and trade differences ease—at least for now—digitalization and energy changes drive new investment, and a number of large lenders are poised to enter the region, observers are predicting a big year for private debt in the Asia-Pacific.
Michel Lowy, founder and CEO of Hong Kong-based global banking group SC Lowy, is particularly bullish. “This year will mark the first stage of a new multi-year allocation cycle in Asia,” he notes, predicting that private credit growth there in 2026 will outpace all other regions around the world, characterized by broader, more specific, and more compelling opportunities than in previous periods.
The momentum has been building steadily over the past few years; A November report from the Alternative Investment Management Association’s private credit agency, the Alternative Credit Council, co-authored by Simmons & Simmons, EY, and Broadridge, projects APAC private credit issuance will grow from $59 billion in 2024 to $92 billion in 2027.
While the APAC market includes more than 50 regions, each with a different regulatory, legal and economic framework, the report notes many drivers for growth, including the growing need for infrastructure financing, a growing middle class, and rapid urbanization. “The ability of private credit to provide flexible, flexible financing solutions positions it as an important factor for business growth across the region,” the authors conclude.
Market growth benefited from US President Trump’s visit last October to the ASEAN summit and his meeting that month in South Korea with Chinese President Xi Jinping. The US-Korea investment agreement and the draft US-China tariff rollback agreement, as well as the ASEAN-China free trade agreement, eased policy uncertainty and improved cross-border transparency for companies and investors, setting the stage for Asia after months of uncertainty.
“This year will mark the first phase of a new multi-year allocation cycle in Asia.”
Michel Lowy, SC Lowy
“The Asian private debt market is poised for strong growth in 2026, driven by demand in the region and demand for yield and diversification from abroad, given the saturation of the US and European markets in the private debt sector,” said Sally Yim, managing director at Moody’s Ratings in Hong Kong. “Structural forces, including continued economic growth, regulatory developments, and growing demand for flexible financing, position the region as an important location for private credit opportunities, particularly in Australia, Japan and India.”
Lowy expects Asian private credit to expand beyond these three key markets to include South Korea, Malaysia, Thailand, and other parts of Southeast Asia.
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“Demand in 2026 will focus on capital-intensive sectors where commercial banks have withdrawn due to strict regulations and limited balance sheets. Real estate will be the main driver, especially in Australia, South Korea, India, Hong Kong, and Southeast Asia, benefiting from strong demand for development funds, bridge loans, and growing private and corporate lending. Private financing markets to meet demand finances that are always strange,” said Lowy.
“Real estate remains the biggest driver as banks pull back from riskier development loans, creating a gap in financing for construction, rehabilitation, and bridge financing. Private lenders are stepping in with flexible structures like mezzanine and microloans, especially in markets like Australia, Japan, and Hong Kong,” said Yim.
“Private debt is becoming an important source of financing for Australian companies, especially those with weak credit profiles that find it difficult to obtain bank loans or issue bonds. Currently in Japan, the demand for capital funds, or bank loans to private funds, will increase as private capital increases, driven by corporate restructuring, more start-ups, and demographic changes that encourage M&A activity.”
Rapid digitization is driving investment in Asian data centers. Here, private sector financing is becoming the norm, with the fulfillment of networks and telecommunications infrastructure requiring flexible long-term financing being offered in the private market.
“The energy revolution is gaining momentum in the region as netzero aims to exceed bank lending capacity, pushing investors in renewables, battery storage, grid renewal, and distributed energy solutions to explore private sources of credit. Add to this healthcare, medicine, and industrial and manufacturing activity in South Korea, India, and ASEAN, as well as private credit demand and deepening in Asia.
SWFS, Family Offices Stack Up
A clear marker of the direction of Asian private credit came last month, when KKR closed its second Asian private debt fund for $2.5 billion, “almost double the size of its previous private debt fund,” noted Yim.
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 received a $1 billion mandate from Mubadala Investment Company, Abu Dhabi’s sovereign wealth fund (SWF), to invest in private debt opportunities across the region.
The growing 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 for regional family offices in Hong Kong and Singapore. Retail participation, too, is expected to grow through dedicated private credit funds and ETFs. Temasek Holdings, Singapore’s private equity fund, is now the world’s eleventh largest investor in private debt, with a portfolio of $22 billion, or 7% of all investments, according to Private Debt Investor.
As the sector grows and becomes more complex, however, investors may be more cautious.
“We believe that in general, [APAC private credit] will remain strong despite geopolitical or major storms, but that division of labor will increase among managers,” said Lowy. “It is very important in the current environment to avoid sectors that tend to be overcrowded. You also need to build transactions with real security in quality securities and position yourself in the financial space 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 shrunk due to strict rules like Basel II and the balance sheet conservatism it has encouraged, offering rare refinancing and unreasonably low loan-to-value ratios. Large spreads over floating rate benchmarks in APAC private credit are readily available; lenders typically aim for 8% to 15% annual rates of return in regional real estate markets and 16% to 20% in the distressed debt refinancing sector, even when hedged back to US dollars.
SC Lowy’s APAC dedicated private debt funds—the first launched in 2018, followed by the second in 2020 and the latest in 2023—offer insight into product flexibility, including short-term and rapid exits. The 2018 and 2020 vintages were recycled 1.5 times and 1.9 times, respectively, with short maturities of one to two years and real cash flows at internal rates of return of 17% to 18% following a “harvest” period of approximately three years from planting.
The 2023 fund, on the other hand, has booked an investment of $917 million and expects to reap.
