Asian family offices, ultra-wealthy drive private credit boom
Fuelled by high interest rates and the growing range of liquid investment options, investors and family offices in Asia have said they are growing allocations to private credit.
Andrew Sharrock, chief investment officer of Landmark Family Office, pointed to the core risk characteristics of private credit to explain its growing appeal among rich families in the region.
Landmark Family Office
“Secured lending with strong covenants to medium-sized enterprises provides direct alternatives to public bonds with potential equity participation,” he noted.
He added that investors unfamiliar with the sector might start their investing with small and medium enterprise (SME) lending secured by residential property; for more sophisticated clients, the options are secured bridge financing, small invoice financing, or litigation strategies.
Chee Jiun Wen, head of private markets and alternatives at the Bank of Singapore, said that the sector’s appeal among rich individuals in Asia is expanding.
“Typically, the asset class appeals to income-seeking investors such as clients looking to construct retirement income. In recent times, as the earning power of private credit, especially direct loans, increases, investors with a tilt towards capital appreciation have also become more interested in the asset class,” he said.
“Many of these clients also see the asset class as a good complement or diversifier for their overall fixed income exposure, given private credit’s low correlation with public market fixed income strategies,” he added.
INCREASING LIQUIDITY
Integral to the appeal of the sector has been the rapid recent growth of open-ended funds offering quarterly liquidity in a sector where previously investors were required to tie up their money for many years, and expanded the sector beyond a previously selective group of institutions.
AITi Tiedemann Global
“The marquee credit managers are offering these credit opportunities in semi-liquid form, so it is no longer about locking up your money for 10 to 12 years,” says Nancy Curtin, global CIO at AlTi Tiedemann Global, a multi-family office and discretionary wealth manager with $49 billion in assets under management, whose private allocations include some in APAC.
“The allure of private credit has extended particularly to affluent families and high-net-worth individuals, who have historically found access to this asset class challenging due to its relative exclusivity,” said Sky Kwah, director of investment advisory of Raffles Family Office.
The new funds are plugging the gap left by banks retreating from lending in recent years.
Raffles Family Office
“Medium-sized companies seek alternative funding sources amidst the increasingly higher requirements for bond issuance. Private credit emerges as an appealing alternative, offering flexible and tailored solutions to meet the diverse financing needs of these enterprises,” said Kwah.
Thibault Sandret, head of private debt research at bfinance, a consultant with a large number of family office clients in APAC, said investors could expect returns from such funds between 10% and 12% among funds that employ leverage (which comprise the majority) and between 7% and 9% from those that don’t.
“We are doing more and more searches on behalf of family offices and wealth managers in Asia,” he said.
REAL ESTATE
This has been particularly true in the real estate sector, according to Koichiro Obu, head of real estate research, Asia Pacific, at DWS.
DWS
“Following rapid interest rate hikes since 2022, traditional lenders in APAC real estate debt markets have been under increased pressure to tighten lending conditions and retreat from new loan approvals, opening a window of opportunity for alternative lenders to enter the debt markets and access more attractive risk-adjusted returns relative to equity in the coming years, especially in South Korea and Australia," he added.
Opportunities in the sector are set to grow.
Daniel O’Donnell, global head of alternative investments at Citi Global Wealth in Boston, says that between $1 trillion and $1.5 trillion of commercial real estate loans will come due over the next two years.
“A significant percentage of these loans are held on the balance sheets of regional banks, either directly or through structured securities. The pullback in bank lending is expected to create opportunities for private capital as debt matures and loans need to be refinanced,” he said.