Rising demand from asset owners and a high-yield environment prompted large private credit fund managers to upgrade and intensify their offerings across Asian markets.
Large fund houses such as UBS Asset Management, BlackRock, and Fidelity International either upgraded their views on Asian private credit or levelled up their presence among asset owners across Asia Pacific.
Baxter Wasson, co-head of UBS O'Connor Capital Solutions (OCS), UBS Asset Management’s private credit unit that lends to small and mid-sized family or founder-owned businesses and assets, noted that Asian investors' understanding of the private credit market has become more sophisticated, and the engagement he had with clients was much stronger compared with some five years ago.
This included asset owners across Japan, Hong Kong, Singapore, and Southeast Asia.
“For the OCS business, this is a market that has been important since day one. We expect that to continue, and I look forward to coming back and spending more time here,” Wasson told AsianInvestor during his Asia trip recently.
Based in New York, the OCS team consists of 12 investment professionals globally and manages about $2 billion in assets.
North America is the largest market that OCS invests in, while it also has certain exposure in Asia Pacific. The lending is across companies in financial services, real estate, industrials, healthcare and technology, and ultra-high-net-worth Individuals, multifamily rental properties and luxury condominiums, and specialty finance.
The team doesn’t have an investment team in Asia, and the deal sourcing is done through UBS’s wealth management network.
Whether it expands the team into Asia will depend on the opportunity set, which right now still comes from North America and Western Europe, Wasson said.
“I think step one is building out our connectivity on the investor side, that often these types of family offices can be both investors and introducing parties,” he said.
Family offices tended to have a good appetite for OCS's strategy. They understood how the market worked as they had experience as lenders to or borrowers from others families, Wasson noted.
“As we raise capital through wealth management here (in Asia), it can lead to additional deal flow. As we see more deal flow, then we have a good, clear rationale for adding investment professionals here (over the long term).”
Industry sources told AsianInvestor that UBS’s acquisition of Credit Suisse will help UBS increase the size of its network for private market deals and fundraising. However, the level of success is "still a question mark" due to complexity and size.
It will depend on whether UBS can properly deal with the merger in terms of structure, management, as well as talent, an Asia-Pacific sales director with an alternative solution firm told AsianInvestor.
A survey released by State Street earlier this year showed that Asia-Pacific asset owners were finding opportunities in the evolving private credit space as they wanted more attractive returns in the private market while the private equity space was crowded with falling returns.
Nan Fung Trinity also told AsianInvestor recently that it was planning to add positions in the private credit and distressed credit space, especially through secondary deals, amid a rising rate environment.
Fidelity International’s Barry Chung, director of private asset sales for Asia ex-Japan noted that Asian asset owners they engaged with lately were looking at ways to increase their private credit allocation.
These asset owners mainly came from Korea, Hong Kong, and Australia and were looking for diversification in the private market at the same time as being attracted to the steady income-generation of private credit over the long term.
Beyond private credit, Fidelity International has plans to further expand its private asset offerings in Asia. It is looking to expand its growth equity and pre-initial public offering (IPO) strategies.
While it has not yet decided whether this will lead to more headcount in Asia, over the past year, Fidelity has added about 100 people to its private assets team globally across investment, operation, risk, and compliance.
Among them, Fidelity has about 30 people in private credit globally, and is constantly adding more people.
Noting that it is vital to have a local presence where the private transactions are happening, Marc Preiser, Fidelity’s portfolio manager for European direct lending said the first step in building a private credit team in Asia would be to build an origination network and follow the deal flow.
Preiser’s team lends to private equity firm-sponsored companies. He noted that in a high-yield environment, it is important to filter through a pipeline of transactions and ensure risks are priced properly.
“This fund vintage will have high returns, but the other side you have to be very careful of is that it will also have probably higher defaults because borrowers will be encumbered by debt that costs just from a pure interest perspective,” he told AsianInvestor during his Asia trip traveling from the UK recently.
For the second half of 2023, BlackRock also upgraded private markets income to a strategic overweight, seeing opportunities for long-term investors with private lenders filling the void left by banks pulling back.
Across Asia, opportunities were underpinned by the refinancing needs driven by maturity and rates reset, liquidity needs driven by low mergers and acquisitions and capital markets activity, and lastly pullback from banks, said Celia Yan, head of Asia Pacific private credit at BlackRock.
“We tend to see more potential in areas that do not fall under traditional lenders’ remit, for example, industries that are inherently asset-light,” Yan told AsianInvestor.
The firm expects to leverage its local expertise in markets such as India, Indonesia, Australia, and China to source deals in the Asian private credit market.