Private credit is expanding rapidly as institutional investors increase allocations to the asset class in search of higher income and diversification.
Three senior asset management executives discussed the growth of private credit and shared their predictions for the broader private markets in separate interviews with Asia Asset Management.
The private credit market is currently worth about US$1.5 trillion and is expected to near $2 trillion by the end of the decade, says Eduard Wehry, head of Asia Pacific ex-Japan for business development, institutional client group, at US investment firm PGIM.
“In the last few years, private assets, especially private credit, have evolved from a niche allocation into a core part of institutional portfolios,” he says.
He points out that private credit offer “better execution, customisation, speed and structural protections” alongside floating-rate features that help to provide some insulation against inflation.
“Durable return premium”
Asset owners are looking beyond traditional asset classes for more stable and differentiated sources of return as public markets become increasingly concentrated and bonds offer less reliable diversification, according to Vincent Ng, managing director, client solutions Asia at Partners Group, an investment firm from Switzerland.
“Traditional 60/40 portfolios cannot deliver sustainable long-term returns in the current macro environment,” he explains.
He says demand for private credit is rising because the asset class is filling a financing gap as traditional banks pull back from segments such as middle-market lending, “Private credit provides access to the large middle-market segment which has been underserved by traditional lenders.”
“Private credit continues to provide a durable return premium driven by illiquidity, structural complexity andactiveunderwriting rather than market beta alone,” according to Antonio Ferrer, global head of multi-asset portfolio management, liquid markets Asia Pacific at Swiss investment firm LGT Capital Partners.
“Floating-rate instruments and typically shorter effective durations support attractive income generation while limiting interest rate sensitivity in a higher-for-longer environment,” he says.
Liquidity
Wehry observes that investors are becoming more deliberate about how they manage liquidity.
“Many clients increasingly view illiquidity not just as a risk to manage, but as a deliberate portfolio feature.”
By locking up capital, investors aim to capture an illiquidity premium, although this requires careful management of cash flows and commitments to avoid mismatches.
All three executives expect investors to continue reallocating from public to private markets.
Ng notes that industry estimates suggest private assets could account for between 20% and 50% of institutional portfolios in developed markets by 2030.
“All signs are pointing to private markets, especially private credit, becoming more mainstream,” Wehry says.
