Private credit funds target billions in retail demand from Asia
Private capital firms once catered almost exclusively to institutions and ultra-wealthy clients who are able to stomach the high-risk and long-term nature of the investments. But the recent trend to tap retail demand shows how industry players working with regulators are moving towards the goal of opening up the burgeoning asset class to the masses.
The Monetary of Authority of Singapore is seeking public feedback on a proposed regulatory framework that would grant retail investors access to the private market with proper safeguards in place.
In Hong Kong, the funds industry has been advocating to broaden the asset class' pool beyond professional investors – those with a portfolio of at least HK$8 million (S$1.3 million), according to a PwC report. Meanwhile in Japan, financial services firm Keyaki Capital has launched the country's first online investment platform for the industry targeting wealthier individuals.
'Private markets remain opaque to many investors, with a lack of publicly available performance data and limited know-how cited as major barriers to entry,' said Hugh Chung, chief investment officer of wealth and fund platform Endowus.
The interest comes amid Asia's private credit boom, which is not showing any signs of easing. Fund investors – so-called limited partners or LPs – remain bullish given the region only represents a fraction of the global private credit market. Assets under management in the Asia-Pacific reached US$94.6 billion in September 2024, making up less than 6 per cent of the US$1.67 trillion global AUM, according to Preqin.
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Similarly, the wallet size of ultra high-net-worth individuals is set to expand in Asia, supported by the region's growing affluence and the need to preserve wealth through intergenerational transfers. In Singapore, the size of retail demand could grow to as much as S$100 billion, said Endowus' Chung. The figure is based on an assumption that 5 per cent of the S$1.93 trillion of total household financial assets gets allocated to private credit, he said.
Meanwhile, in Japan, retail players' investments into private markets could potentially reach around 47 trillion yen (S$423 billion), assuming 10 per cent of total financial assets of the ultra high-net-worth and high-net-worth segment gets allocated, said Keyaki Capital's chief executive officer Taiki Kimura.
In Australia, a growing number of managers have launched new credit investment vehicles to capture growing demand for higher returns by well-heeled locals. The pool of capital is around US$1 trillion, according to one estimate. Recent entrants include UK manager Coller Capital's launch of a private credit secondaries fund targeting individuals and Income Asset Management's new initiative for Australians to invest directly in corporate loans.
Asia's private credit market is growing so fast that a rush of new participants into the direct-lending sector is fuelling concern about a weakening of lending standards. Similarly, the opaque nature of the sector is attracting greater scrutiny from regulators.
In Oceania, corporate watchdog Australian Securities and Investments Commission is increasing oversight of the space by seeking industry feedback amid concerns about disclosure and potential investor losses.
'Investors should have a long-term horizon if they are interested in private credit solutions,' said Endowus' Chung. 'One key challenge here is to educate retail investors that private credit is an illiquid investment.' BLOOMBERG
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