• The global economy muddled through 2022 with geopolitical tensions and inflationary pressures.
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• Entering 2023, there is a cautious sense of optimism, that the worst of the Covid-19 pandemic is finally behind us, as the world’s second largest economy finally opened up after an extended lock-down. 
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• Three months on, a crisis of confidence in the western banking sectors poses a fresh threat to the global economy, and financial stability. 
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• Global central banks have taken swift actions to mitigate the contagion effect on the financial markets. Nevertheless, they face the challenge of navigating a narrow path at the intersection of price stability and financial stability.  
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What does this herald for the private debt market? 

• The fact that it has grown more than six-foldSource: Goldman Sachs Asset Management, Oct 2022 since the Global Financial Crisis offers a possible crystal ball glimpse to its growth opportunities in today’s environment. 
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• The demand for private credit by borrowers and investors can only increase, as the banking sector and public markets turn cautious. 
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It is timely that the private debt community is gathered here today, to discuss key trends and developments in this asset class. And I’ll start with three broad themes. 

• First, the emerging role of private credit. 
• Second, the prospect for private credit in Asia. 
• And third, how MAS intends to support the growth of this asset class. 
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Private Credit as an Asset Class

Investments into private markets have become more mainstream, from US$2.9 trillion in 2011 to US$11.7 trillionPreqin Pro on June 2022. 

• Over the past 10 years to June 2022, private capital provided an IRR of 15.1%Preqin Pro, and outperformed the MSCI World IndexMSCI World Index Factsheet by 5.6%. 
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• More recently, private credit funds returned 4.2%Bloomberg, What is Private Credit in the first nine months of 2022 
  • while US high-yield bonds lost 14.7% in the same period 
  • and USD-denominated emerging market debt lost 20.5% 
  • the Bloomberg Global Aggregate index also fell 14.3% in the same periodPreqin Global Report: 2023, Private Debt.
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• This explains the growing popularity of private markets strategies among institutional investors looking for yields – including direct lending and special situations.  
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Private credit has also grown in tandem. 

• Private credit AUM has grown by almost 3 times, from US$342 billion in December 2011 to US$1.4 trillion in June 2022Preqin Pro. 
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• This is projected to grow to US$2.3 trillion by 2027Preqin Global Report 2023: Alternative Assets.
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• The number of private credit funds also doubled from 104 in 2010, to 222 in 2022. 
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• Correspondingly, the amount of aggregate capital raised per year increased from US$44.6 billion in 2010 to almost US$210 billion in end-2022Preqin Pro. 
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Investors value private credit for:

• Diversification vis-à-vis other asset classes
• Co-investment opportunities with sponsors and general partners (GPs)
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• And attractive yields with buffer against potential default loss, while benefitting from structural protections.

Borrowers find private credit attractive for:

• Access to financing, for the underserved segments that are not well covered by the banking sector or find it cost-inefficient to tap the public bond market
• And access to smart capital, and the opportunity to access wider business networks; and the availability of flexible, bespoke solutions and greater financing certainty.  

Asia’s Growth Potential for Private Credit

The same growth story is taking place in Asia.

• The Asian private credit market has grown by almost 30 times in the last two decades, from only US$3.2 billion in 2000, to over US$90 billionPreqin Pro in June 2022.
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• This growth has accelerated in recent years. For example, 
  • Private credit investments allocated to Southeast Asia by global GPs as at June 2022 was US$65.4 billionPreqin Pro, an increase of 52% from US$43.1 billion in 2020. 
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  • Dry powder as of June 2022 was US$25.2 billion, an increase of 48% from US$17 billion in 2020. 
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  • In India, the total private debt AUM managed by India-based GPs was US$13.4 billion as at June 2022Preqin Pro, an increase of 51% from US$8.9 billion as at end 2020. 
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  • In China, this same figure was US$51 billionPreqin Pro, an increase of 31% from US$38.9 billion as at end 2020. 
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  • The average Asian private credit fund size also increased from US$195 million in 2020 to US$386 million in 2022Preqin Pro.
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Notwithstanding this growth, private credit remains relatively nascent in this region. 

• APAC-based private debt AUM was just 6%Preqin Territorial Guide: Private Debt in APAC 2022 of the global total. This contrasts with Asia’s share of global AUM at 30%Bain & Company, Asia-Pacific Private Equity Report 2022. 
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Looking ahead, there remain tailwinds for this asset class in Asia.

• Asian SMEs, which represent 96% of all business enterprises in the region, already faced an estimated financing gap of US$5.2 trillionWorld Bank, Small and Medium Enterprises (SMEs) Finance every year. 
• Private debt financing, ranging from direct lending to special situations, and senior position in the capital structure offer higher level of assurance in volatile market periods.
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• In the rising interest rate environment, the floating rate yield of private debt accords investors some downside protection. 
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• In Singapore, we are seeing more private credit managers. Many alternative managers, including Apollo, Blackstone, HPS and Oaktree, have established or expanded their private credit capabilities here to tap opportunities in the region.   
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At the same time, the Asian private debt market is more fragmented and challenging to navigate than the US and Europe. 

• The legal framework in parts of emerging Asia poses additional risks or challenges to lenders and investors in private credit. 
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• Talent in the private credit space can be hard to come by:
  • They need competencies in deal sourcing, structuring, financial modelling and execution
  • And also appreciation of the diverse culture and language in the region.
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Supporting the Growth of the Private Credit Ecosystem 

MAS is committed to supporting private credit managers in their Asian expansion, and overcome these challenges.