Assets under management in private debt in Asia Pacific increased to $92.9 billion as of September 2023, according to new data from Preqin.

This represents an impressive six-fold jump over the past decade and a 2.5-fold increase over the past five years.

“While regional banks dominate credit provision in the Asia-Pacific region, their conservative lending standards often fail to meet the diverse financing needs of many businesses, presenting an opportunity for private debt managers to highlight their services as potentially better a positioned intermediary,” Preqin wrote in his latest Private debt in APAC report.

“With its floating rate nature, the asset class is well positioned to provide consistent income for investors in today's high interest rate environment. While investor interest is primarily in North America and Europe, the Asia-Pacific region is rapidly gaining recognition.”

However, the firm acknowledged that the region has faced challenges in recent years, including fund closures. However, fund closures have slowed with 51 reported in 2021, 40 in 2022. and 25 in 2023.

The aggregate capital raised by these funds also declined from nearly $8 billion in 2022. to $5 billion in 2023, a third of the $15 billion raised in 2021.

Prekin said part of the reason for this decline could stem from investor wariness about the "relative nascentness" of Asia Pacific private debt managers compared to their more established global peers and their experience navigating in a new market environment.

"The test for managers now is to demonstrate their ability to manage risk effectively in a higher interest rate environment, which could lead to higher default rates and more volatile credit conditions," the firm said.

"The Asia Pacific private debt market is full of opportunity and managers who overcome the challenges of investor perception and risk management can succeed in this evolving landscape."

Looking more closely at the region, funds focused on India and Japan have raised 31 percent and 29 percent of total regional capital in 2024, respectively. until June.

Meanwhile, Australia has historically accounted for 0 percent of all capital raised – except for the 1 percent contribution it made in Asia Pacific in 2019. – but since the start of this calendar year to date, Australia has contributed 3 percent of all capital raised through the region.

Turning to the ratio of funds by regional focus during the same period, Preqin revealed that Japan took the lead in the APAC region with 42 percent of the total, followed by South Korea and India with 25 percent and 17 percent of funds, respectively.

Australia accounted for 8 percent of funds directed to the Asia-Pacific region, an improvement from 2023's reading of 0 percent. and the 3 percent peak that Australia maintains in 2019 and 2020.

“Private debt AUM in APAC still represents only about 3 percent of total private equity AUM in APAC and 5 percent of global private debt AUM, indicating significant opportunity for further expansion. The region's pressing need for funding can help fuel this expansion,” Prekin said.

Despite its relatively small size by global standards, private debt in the Asia-Pacific region is becoming increasingly popular with assets under management more than doubling in five years, reiterated Preqin's head of Asia-Pacific and valuations , Angela Lai, in the recent Asia Pacific Alternatives Business Webinar.

Lai explained that in the Asia-Pacific region, traditional banks still dominate lending, with investors turning to private debt as part of their "distressed strategies". By contrast, in North America and Europe, "private debt can often compete directly with banks as a primary lender."

Due to the higher share of high-risk strategies, Lai noted that Preqin's performance forecast for private debt is higher in APAC than in other regions.