Asia’s private-credit market presents new opportunities for investors

ASIA’S major financial centres, including Singapore, Hong Kong and Tokyo, are taking a bigger role in the growth of private credit.

This form of lending sits outside traditional bank loans and public bond markets, and is increasingly being used by funds, insurers, pension funds and state-backed investors to support companies and projects that need long-term financing.

Much of the debate about private credit recently has focused on the US, where some funds have faced pressure from higher interest rates, borrowing levels and exposure to the sectors that could be disrupted by artificial intelligence.

Asia looks different. Private-credit funds in the region are generally less exposed to software and high-growth technology companies. There are also fewer lenders chasing the same deals, which has helped keep lending standards more conservative than in the crowded US market.

Fitch Ratings’ insurance ratings team views private-credit exposure among major rated Asia-Pacific insurers as manageable, with levels remaining below 5 per cent of total assets.

In simple terms, insurers are putting more money into private credit than before, but it remains a relatively small part of their overall investments and has not significantly changed their risk profile.

Growth and innovation

Private credit is moving beyond direct lending to companies, as the market develops other ways to finance assets and spread risk more widely among investors.

Three broad trends are driving this growth.

The first is the huge amount of money controlled by insurers, pension funds and sovereign wealth funds. Together, these investors manage about US$100 trillion globally, and are looking for reliable long-term returns.

The growing role of these institutional investors is expanding the sources of funding available to companies and projects, especially where banks may be less willing or able to provide long-dated loans.

The second is Asia’s enormous need for infrastructure funding.

A 2025 McKinsey report estimates that Asia could receive up to US$70 trillion in infrastructure investment by 2040, reflecting the region’s rapid urban growth, expanding populations and industrial development.

Demand is especially strong in areas such as digital infrastructure, energy and data centres. These projects often have patient customers and predictable income, which can make them attractive to investors looking for stable returns.

The third is financial innovation. Rather than relying only on standard loans, lenders and investors are finding ways to package income-generating assets, such as mortgages, car loans or receivables, into investments that can be bought by a wider group of institutions.

Other new opportunities include lending to investment funds, packaging private loans into investable products, creating structures suited to insurers, transferring insurance-related risks to capital markets and using digital technology to make markets faster and more transparent.

Fund finance is one example. It allows private-market funds to borrow against the value of their investments or against money that investors have committed but not yet paid in.

This can give investors exposure to a broad range of assets, but it also requires careful judgment about borrowing levels, asset values and how easily investments can be sold if markets turn.

Other structures are designed specifically for insurers, helping convert private debt into investments with transparent ratings and more predictable payment schedules. This can make private credit easier for insurers to use alongside their long-term obligations to policyholders.

Insurance-linked securities are also evolving. In the past, they were mainly used for risks such as natural disasters. Increasingly, they could also be used for newer risks linked to digital infrastructure, such as major power outages, cooling failures or shutdowns.

Digital assets are another area to watch. Tools such as blockchain are being used to issue and settle bonds more quickly and to improve transparency.

Digital bonds, stablecoins, tokenised deposits and digital money-market funds may become more useful for institutions as regulation becomes clearer.

Such innovation in private credit is being shaped by investors’ need for scale, steady income, clearer information and better use of capital.

Risks to watch

The growth opportunity is clear, but the risks should not be overlooked. Borrowers may face pressure when existing debt needs to be refinanced, technology can become outdated quickly, currencies can move sharply and complex structures can make it harder to see where risk ultimately sits.

Even so, private credit can play a useful role in Asia by connecting long-term investors with long-term financing needs. Pension funds and insurers, for example, can provide patient capital for assets that may take years to mature.

For the market to grow sustainably, investors will need clear information, credible assessments and common ways to compare risk across different products.

Asia’s private-credit market has significant room to expand. The most successful growth will come from financing structures that meet the region’s real needs, lenders that remain disciplined, and risk measures that investors can understand and trust.

The writer is head of markets research at Fitch Ratings