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Private Credit Filling Funding Gap

Private Credit Filling Funding Gap

(29 January 2024 – Singapore) Originally a financing source for commercial enterprises turned away from other credit facilities, private credit has developed into a credible rival to traditional bank debt and liquid markets including syndicated loans and high yield corporate bonds.

The shift was scarcely believable as recently as 2020 yet as of 2024 emerging private credit heavyweights are frequently financing multi-billion-dollar debt structures end-to-end. Euromoney reports that private credit has grown rapidly from US$500 billion of assets under management (AUM) in 2014 to almost US$1.7 trillion AUM in 2024. Preqin projects private credit markets to expand to US$2.3 trillion by 2027.

The World Bank calculates the annual financing gap for the world’s Microbusinesses and SMEs at just over US$5 trillion with almost half that value attributed to Asia. Banks have retreated from lending to many large buyouts and SMEs due to elevated regulatory costs imposed to protect taxpayers from having repeatedly to bail out lending built on high leverage and maturity mismatches.

“As liquid market activity fell significantly, private credit was able to step up and step in. The combination of locked-up capital and experienced managers able to discern the appropriate credit opportunities, has meant private credit is taking even more share from banks and the liquid markets” stated Nuveen Co-Head of Senior Lending, Randy Schwimmer.

“Asian banks are not in any way capital constrained as they are in the US. It is more that Asian banks are still more focused on lending to top-tier credits. So, in a region that depends on its banks to meet 80 percent of financing needs and where banks are very much funded by deposits, the definition of bankable risk is a lot more defined” commented DBS Global Head of Fixed Income, Clifford Lee.

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