Private credit has more reasons to thrive in Asia

THE FEDERAL RESERVE'S rapid interest rate hikes in 2023 and tough regulations on banks have put private credit on the road map to becoming an asset class in its own right.

In the US, it has grown bigger than the high-yield corporate bonds market or leveraged loans; its prominence even brought heated debate overwhether this type of lending can ignite the next financial crisis.

It's a different picture in Asia Granted, KKR & Co. managed to raise $1.1 billion for its first fund in the region and Blackstone saw "incredible" subscription for its flagship offering in Japan. But with only about $90 billion in assets under management, private credit is still in its infancy.

However, there are good reasons to believe that the asset class can

finally take off in 2024, starting with the sharp disruption in high-yield corporate dollar bond issues. For years, this space was a fertile ground for wealthy Asians, who gobbled up the yield and were drawn to the perceived safety of the investments.

The serial defaults of China's real estate developers that started with China Evergrande Group's spectacular blowup in 2021 changed the entire landscape. In notional terms, this market has shrunk by 47% since 2020 to about $154 billion.