Macroeconomic uncertainty and geopolitical tensions will weaken private credit fundraising and deployment in the Asia-Pacific (APAC) region in the near term, although the area’s long-term resilience remains intact, Moody’s Ratings has warned.
According to a recent report by the ratings agency, sentiment towards private credit is expected to slow over the next 12 to 18 months within the region as persistently high interest rates and geopolitics weigh on investor appetite for illiquid assets.
Moody’s said that rising credit risks, liquidity mismatches and shifts in investor sentiment are likely to increase redemption requests globally and temper APAC inflows into the asset class. This is after retail-focused, semi-liquid business development companies have recorded historic redemption levels over the past two quarters.
Overall, Moody’s said these developments are leading to greater scrutiny of liquidity terms and regulatory oversight of private credit in the region, placing greater emphasis on investor protection.
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“As a result, stricter requirements for distribution to retail investors and high-net-worth individuals are likely to lengthen fundraising timelines and constrain capital formation in these segments, although this will support the sector’s long-term institutional credibility,” said Moody’s.
However, the ratings agency said that the dynamics of the APAC private credit market differ from those in the US, where retail-driven inflows and semi-liquid fund structures are more prevalent, while exposure to the software sector presents a greater risk.
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“By comparison, private credit demand in APAC is more closely anchored to structural funding gaps arising from bank retrenchment and borrowers’ financing needs,” the report added. “This characteristic should help support the long-term resilience of private credit markets in the region.”
Moody’s said it expects private credit in APAC to continue growing faster than in the US and Europe, driven by financing needs across a range of sectors. It added that banks’ increasing selectivity will create durable opportunities for private credit.
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