With fragmented banking markets unable to meet the growing demand for credit—particularly in middle-market sectors—private lenders are stepping in to fill the financing gap. This rapidly expanding market offers investors attractive risk-adjusted returns and diversification opportunities, positioning APAC private credit as a key driver of regional economic development.

Economic growth

APAC is projected to account for up to 70 per cent of global GDP growth, creating substantial demand for credit financing. Traditional banking institutions in the region face regulatory and structural constraints, such as Basel III requirements, limiting their ability to meet this rising demand. This is especially true for micro, small, and medium-sized enterprises (MSMEs), which make up 97 per cent of all businesses in Asia, accounting for 56 per cent of the workforce and 28 per cent of economic output. This unmet need for financing presents a significant opportunity for private credit providers to step in and bridge the funding gap.

Structural inefficiencies in traditional banking

The APAC banking sector, while a dominant force in credit supply, faces significant inefficiencies, particularly with non-performing exposures and inflexible lending practices. Many banks favour lending to government-backed industrial sectors, leaving other segments, notably MSMEs, underserved. Recent global banking concerns and tightening credit conditions have further amplified these challenges, presenting a clear opportunity for private credit to step in with flexible and accessible capital solutions. Additionally, the region’s leveraged loan and high-yield bond markets are underdeveloped and fragmented, as local lenders seldom venture beyond their borders—highlighting the untapped potential for private credit to fill this gap.

Infrastructure and sustainability

Private credit in APAC is increasingly pivotal in both financing critical infrastructure projects and promoting sustainable development. Funds like SC Lowy’s Strategic Investments IV (Asia) are providing essential capital to businesses that are otherwise restricted from traditional bank lending. This funding enables the development of crucial sectors such as real estate, toll roads, and transportation networks, particularly in countries like India. These infrastructure projects are vital for supporting long-term economic growth and enhancing regional connectivity.

At the same time, private credit is advancing sustainable development by offering financing to small and medium-sized enterprises (SMEs) and large infrastructure projects in underserved areas. Many APAC countries face limited access to capital, and private credit steps in to fill this gap, promoting entrepreneurship, job creation, and inclusive economic growth. By fostering both infrastructure development and financial inclusion, private credit investments contribute significantly to the region’s long-term sustainable growth, especially in markets that have historically been underserved.

Dynamic market opportunities with returns

APAC presents a broad spectrum of investment opportunities, from highly developed markets like Australia and South Korea to rapidly growing emerging economies in Southeast Asia. This diversity allows private credit investors to implement tailored strategies, such as direct lending and collateral-backed lending, that suit the unique characteristics of each market. Investors who navigate the region’s complex legal and regulatory environments gain a competitive advantage, positioning them to achieve attractive risk-adjusted returns. APAC private credit investments offer a premium over comparable opportunities in the US and Europe, with direct lending deals typically yielding a 300-500 basis-point premium. More complex capital solutions can offer even higher returns. The relatively low level of competition among lenders enables private credit providers to negotiate favourable terms, such as robust covenant packages and asset-backed loans, enhancing both risk protection and return potential.

Diversification

For global investors, APAC private credit provides substantial diversification benefits, offering exposure to both developed and emerging markets. Sectors like real estate, industrials, healthcare and infrastructure are ripe for investment, providing opportunities to diversify beyond the traditional focus areas of public market portfolios. Additionally, investors with local expertise and strategic flexibility can tap into niche opportunities, navigating diverse legal frameworks and capitalising on regional market nuances.

Risks

Despite the potential for strong returns, investing in APAC private credit is not without challenges. Political and regulatory risks are significant, as sudden policy changes—such as those seen in China—can affect the stability of private markets. Local regulatory environments may also be less mature compared to developed markets, adding layers of complexity. Mitigating these risks requires deep local knowledge and partnerships with firms that understand the intricacies of each market.

Conclusion

The APAC private credit market is poised for continued growth as economic expansion, structural banking inefficiencies, and rising demand for capital create new opportunities. With attractive risk-adjusted returns and diversification benefits, private credit is well-positioned to meet the financing needs of businesses across the region. For investors equipped with local expertise and a strategic approach, APAC private credit presents a compelling opportunity to achieve superior returns while supporting sustainable economic development across a rapidly evolving region.

The firm writes that the Russell Investments Global Private Credit Fund will employ a multi-manager approach, utilising Russell Investments’ 50 years’ of private markets research expertise and open architecture structure to invest in selected top-ranked managers across the full private credit spectrum.

Via this approach, the firm writes that it will provide its clients with a single point of access to a highly diversified range of private credit exposures. This will include North American and European asset-backed and direct lending allocations as well as special situations, real estate debt, credit risk transfers and royalty income opportunities on a more tactical basis.

Alongside the significant diversification delivered by the Luxembourg-domiciled Fund’s portfolio, investors are also expected to benefit from its evergreen structure, which may offer quarterly liquidity up to 5 per cent of NAV after the investment period.

The Fund starts with a complementary mix of seven specialist portfolios managed by underlying General Partners (GP) strategically determined through the firm’s rigorous, ongoing research process of more than 1,000 private credit products, the firm says, adding: “As the Fund grows, it will continue to diversify”.

It will seek to deliver an annualised net return of 8 per cent over a market cycle and will be available to professional investors based in the UK.

The firm writes that the launch comes at a time of significant appetite for private markets exposure, with inflows of approximately USD200 billion between January 2021 and January 2024. “This highly attractive environment has brought a more diverse range of investors into the asset class, encouraging improvements in the quality and liquidity of GP vehicles, and the development of more innovative solutions to maximise the opportunities available from this asset class”.

Commenting on the launch, Keith Brakebill, Senior Portfolio Manager, Private Credit at Russell Investments, says:  “Private credit has been an asset class ‘in vogue’ for some time, with investors keen to access the improved returns and lower drawdowns on offer relative to those available via public markets. However, investors have historically been limited by their ability to access the asset class effectively and have had to do so by focusing on specific sub-segments rather than via a broad exposure. In launching our evergreen Russell Investments Global Private Credit Fund, we are able to offer a compelling solution to investor needs, allowing clients to access a diversified portfolio of private credit assets in a single investment which can generate income and long-term capital appreciation.”

 Jim Leggate, Head of EMEA at Russell Investments, says: “This launch reflects our continued commitment to provide all clients across the institutional and wealth management space with institutional-quality solutions to meet their long-term goals. There are clear advantages for investors to ensure they have adequate exposure to private credit assets which can be employed as a return enhancer, risk reducer or a combination of the two depending on their individual requirements. Our scale and research capabilities leave us well positioned to provide diversified exposure to best-of-breed managers within this evergreen structure that aligns with investors’ liquidity requirements.”

The firm writes that the launch of the two strategies follows increasing institutional client interest within the fast-growing private credit market.

Global Transition Infrastructure Debt Strategy

The launch of HSBC AM’s Global Transition Infrastructure Debt strategy has attracted over USD240 million in client commitments to date.

The strategy invests in senior and second lien debt, targeting mid-market borrowers in investment grade countries in Europe, North America and the APAC region.

With an estimated USD275 trillion of spending on physical assets needed to reach net zero by 2050, HSBC AM’s Global Transition Infrastructure Debt strategy aims to provide investors with opportunities to finance infrastructure assets that facilitate the transition, such as clean power, energy efficiency and clean industry.

HSBC AM’s Infrastructure Debt team – which was established in 2017 and has raised USD4.1 billion in commitments to date – will also leverage HSBC Bank’s global origination platform, as well as external banks, advisers and project sponsors, to source investment opportunities.

European Senior Direct Lending Strategy

HSBC AM has also expanded its direct lending franchise with the launch of its European Senior Direct Lending strategy, taking the total commitments across the HSBC Direct Lending platform to USD2.4 billion. It has now completed its second close, with fundraising expected throughout 2025, following deployment of USD1.4 billion to date across the platform.

The European Senior Direct Lending strategy is an extension of HSBC AM’s UK Direct Lending strategy, which launched in 2020, and aims to provide investors with access to an extensive origination platform across Continental Europe and the UK through an exclusive partnership with HSBC Bank.

It invests in senior secured loans to private equity backed European middle market companies, with a focus on companies with an EBITDA between EUR10 – 35 million. The strategy recently supported the refinancing of Creditinfo, a leading service provider for credit information and risk management solutions worldwide.

Scott McClurg, Head of Private Credit, HSBC AM says: “The growth of our private credit platform plays an important role in our wider alternatives business. The launch of our two new strategies demonstrates our commitment to providing clients access to potentially compelling investment opportunities both within Europe and globally.

“The extension of our direct lending offering to Europe reflects the demand we are seeing from institutional investors for a high-quality, mid-market European direct lending strategy. Our offering captures the benefits of our partnership with HSBC Bank to leverage a strong pipeline of pan-European loan origination opportunities.

“We believe in the vital role that substantial and sustained investment in infrastructure will play in the transition to net zero. Our Global Transition Infrastructure Debt strategy provides clients with the opportunity to contribute to, and benefit from, the shift towards a more sustainable global economy while aiming to deliver compelling returns.”