Private credit gains ground in Asia Pacific as traditional lending retreats

Private credit has emerged as one of the fastest-growing sources of financing within private markets, capitalizing on regulatory constraints facing traditional banks and an increasingly sophisticated investor base seeking yields.

The surge in private credit activity reflects a structural shift in the landscape, as bank lending has become more constrained by Basel III capital requirements and regulatory oversight, creating opportunities for private credit to fill the gap.

While still nascent compared to North American and European markets, private debt funds in APAC have experienced rapid growth, with assets under management (AUM) growing at 19.5% from 2020 to 2023, to hit $99.3B. Globally, AUM growth during the same period was 11.5%, hitting $1.50T.

Global market dynamics driving growth

Several factors are converging to drive private credit expansion. Rising interest rates have made debt financing more attractive than equity, while M&A activity continues to create demand for flexible financing solutions. Private equity firms, facing pressure to deploy capital in a challenging fundraising environment, are increasingly turning to private credit as both a complement to their equity investments and a standalone strategy.

The regulatory environment has also played a crucial role. Banking regulations across key markets have tightened lending standards, particularly for leveraged transactions and cross-border deals. Meanwhile, insurance companies and pension funds in markets like Japan and Australia face duration mismatches in their portfolios, making private credit’s stable, long-term yields increasingly attractive.

Private credit in APAC

Businesses in APAC continue to be more reliant on traditional bank financing for credit, according to Ares. Banks are responsible for 77% of financing to APAC businesses, but in Europe this is 20% and, in the US, just 12%. The development of private credit in the US and then Europe suggests that the trend may follow in APAC, as GPs compete with banks to provide businesses with credit.

This development could be compounded by increased demand for credit financing in APAC as economic growth continues. Ares forecasts APAC’s gross domestic product (GDP) to contribute 52% of global GDP in 2030, but the region already has a funding gap as banks are increasingly unable to meet funding needs. This creates more opportunity for private credit to step in.

Challenges and headwinds

Despite the growth trajectory, private credit in APAC faces several headwinds. The lack of standardized documentation and legal frameworks across jurisdictions creates complexity for cross-border transactions. Recovery processes vary significantly between markets, with some offering limited creditor protections compared with established markets like the US.

ASEAN has taken some steps toward finance and legal harmonization, through the ASEAN Economic Community (AEC), Banking Integration Framework (ABIF), and Capital Markets Forum (ACMF), but these efforts lack the supranational legal authority of the European Commission or the federal structure of US rules. Moreover, the region’s biggest economies, including China, Japan, South Korea, and Australia, are not ASEAN members.

Currency hedging remains a persistent challenge for international investors, particularly given the volatility of certain Asian currencies. Additionally, the relative lack of distressed debt experience in the region means that many private credit managers have yet to be tested through a full economic cycle.

Investor appetite and allocation trends

Institutional investors across the region are gradually increasing their allocations to private credit, though from a low base. Pension funds and insurance companies are driving much of this demand, attracted by the asset class’s income-generating characteristics and portfolio diversification benefits. However, allocation levels remain well below those seen in North America and Europe.

The denominator effect that affected private markets allocations in recent years has had less impact on private credit, given its shorter duration and regular distributions. This has made it an attractive option for institutions looking to maintain alternative exposure while managing liquidity needs.

Outlook and implications

The private credit market in APAC is expected to continue its growth trajectory, supported by structural shifts in the banking sector and increasing institutional adoption. However, this growth will likely be uneven across markets, with developed economies like Australia and Japan leading the way while emerging markets follow.

As the market matures, differentiation will become key. Managers with strong origination capabilities, local market knowledge, and established relationships with financial intermediaries are likely to outperform others. The ability to navigate complex regulatory environments and provide flexible structuring solutions will be key competitive advantages.

The rise of private credit represents a fundamental shift in how companies across the Asia Pacific access capital. As traditional banking relationships evolve and alternative financing becomes more mainstream, private credit is positioned to play an increasingly central role in the region’s financial ecosystem.

Technology as a competitive differentiator

As the race for high-quality deals heats up across the region, private credit firms are more frequently utilizing legal intelligence and technology solutions to stay ahead. In the competitive APAC markets, where swift action can secure access to top-tier deals, companies using advanced legal technology can complete transactions more quickly than competitors stuck with manual methods. This increased efficiency offers a notable first-mover advantage, especially in auction scenarios where timing is everything.

Beyond cost and speed benefits, these tools provide firms with a defensive edge in complex cross-border transactions. Early detection of contract anomalies, regulatory non-compliance, and potential disputes enables more informed investment decisions and sharper risk assessments. The ability to quickly identify red flags and assess legal risks across portfolios leads to more accurate valuations and better outcomes for investors.

The different compliance requirements across Asia further amplify the need for advanced legal technology. With differing compliance mandates, corporate frameworks, and legal customs spanning from Japan to Indonesia, firms have to operate in an increasingly intricate network of regulations.

Cutting-edge legal intelligence tools help guarantee precision and adherence to diverse jurisdictions, while automation enables firms to handle a greater number of deals across several countries without a corresponding increase in their legal staff. As the region’s private equity market displays indications of rebounding, firms that have put resources into legal technology infrastructure may discover they are better prepared to seize new opportunities.

About Robin: Robin is a legal intelligence platform that helps businesses use AI to move beyond manual legal work. Its proprietary AI models, developed in partnership with leading labs like Anthropic, revolutionize contract editing and data extraction for some of the world’s largest companies.