The Case for Asia Pacific Private Credit

The Global Backdrop

Private credit has evolved into a core allocation within institutional portfolios. In years gone by, ADM Capital spent client meetings introducing the asset class and its nuances versus fixed income or private equity. Today, Limited Partners have dedicated private credit analyst teams and are allocating with more structure across performing/ non-performing credit. Asia Pacific’s (APAC) private credit markets are diverging from those in the US and Europe, yet most allocators’ portfolios haven’t caught up. Despite representing less than 10% of global private credit AUM, APAC accounts for over a third of global GDP[i], a mismatch that points to structural under-penetration rather than a lack of opportunity. In an environment where Western private credit is showing signs of crowding, spread compression and weaker creditor protections, we now spend most of our time explaining how unlevered private credit loan structures in Asia differ from the traditional, performing direct lending approach which has come to dominate mega-fund capital flows.

Private credit has shifted from a niche to a mainstream asset class, with global assets forecast to climb toward ~US$4tn by 2030[ii], supported by institutional demand for floating-rate income and diversification away from traditional fixed income. At the same time, competitive pressure is shaping risk-reward differently by region. In the US and, increasingly, Europe, heavy inflows into direct lending and a finite pool of quality deals have compressed new-issue private loan spreads, even as borrower credit quality has weakened with interest coverage ratios declining. Lenders are accepting less compensation for more risk [iii],[iv]. In APAC, by contrast, the limiting factor is not capital demand but the availability of non-bank lenders with the local networks and structuring capability to step into a market still dominated by traditional banks [v].

For investors, APAC represents a differentiated exposure – one that offers scarcity value, structural inefficiencies and access to a diversified set of credit opportunities, often superior to the relatively illiquid fixed income equivalent or waning private equity performance.

A Maturing Western Market Under Pressure

Recent media attention on private credit has intensified – and in many cases polarised – driven by high-profile redemption pressures, liquidity constraints and concerns over systemic risk. While these developments warrant attention, they are largely concentrated in US retail-oriented, semi-liquid fund structures, and do not reflect a broad-based deterioration in private credit fundamentals – particularly in APAC.

The US private credit market is the world’s most mature, but that maturity is now working against investors. Capital from insurers, mega-funds and multi-strategy platforms has poured into direct lending, compressing spreads to levels that increasingly blur the line between public and private markets and erode the illiquidity premium that originally attracted allocators to the space [vi], [vii]. As elevated fundraising levels translate into performance pressure, US private credit managers are increasingly competing with traditional banks for corporate loans and have become a core financing source for private equity [viii].

Deteriorating US credit fundamentals have not helped perceptions. Fitch Ratings’ Private Monitored Ratings (PMR) universe of US private credit loans posted a record trailing twelve-month default rate of 9.2% in 2025, (up from 8.1% a year earlier) with smaller issuers (EBITDA below US$25m) defaulting at 15.8% compared with 4.0% for larger borrowers [ix]. While realised losses for first-lien lenders remained limited, a step-up in default frequency and a concentration in smaller issuers reflects a clear deterioration in underlying credit quality. Many of these “defaults” do not show up as outright missed interest payments, but instead as payment-in-kind (PIK) toggles, maturity extensions, temporary deferrals and repeat documentation amendments that mask underlying stress [x]. This soft-default dynamic delays loss recognition and raises questions about underlying credit quality and projected recoveries. US non-traded Business Development Companies (BDCs) are compounding the problem. BDCs have become the public face of private credit’s growing pains as inflows slow and redemption queues increase [xi].

Asia Pacific’s Untapped Potential

Asia Pacific feels ‘business as usual’ amid these credit headlines. Banks account for more than three-quarters of credit supply in most APAC countries, compared with about one-third in the US and just over half in Europe [xii]. Public bond markets remain underdeveloped, with APAC contributing just 14% of global bond issuances despite its large share of global GDP.1 This reliance on conservative bank lending leaves mid-market firms and small-medium sized enterprises (SMEs) underfunded, especially in the absence of deep high-yield and CLO markets.

SMEs in developing Asia face an estimated US$2.4tn annual financing gap, while the region’s infrastructure needs add a further ~US$26tn through 2030, gaps that non-bank lenders are well positioned to address [xiii]. Deal flow is predominantly non-sponsored, with 90% of APAC private credit transactions involving borrowers without private equity backing [xiv]. Origination skews towards founder-owned and mid-market corporates that have not gone through PE-led buyout processes, and are therefore less likely to run competitive, auction-style financing rounds. For lenders, that backdrop typically translates into greater pricing power, stronger documentation and better negotiating leverage on covenants and security packages than is available in the more crowded US and European markets [xii]. Lenders originate much of APAC private credit bilaterally or through small club deals, secured on a first-lien basis over operating assets and often supported by share pledges and personal and/or corporate guarantees [xv]. Maintenance covenants remain standard in APAC, especially outside the largest sponsor-driven transactions. These include regular tests on leverage, interest cover and LTV, giving lenders earlier intervention points that covenant-lite US structures typically lack.

Beyond yield and structure, APAC offers a diversification benefit that is difficult to replicate in more homogeneous markets. APAC spans over a dozen investable credit markets, each shaped by distinct economic, political, regulatory and demographic drivers. A portfolio diversified across India, Australia, Southeast Asia and China is structurally less exposed to any single credit cycle or political shock than a concentrated US or European portfolio. This diversification is further reinforced by superior growth dynamics: as seen across much of APAC, both current and projected GDP growth meaningfully outpace that of the US and Europe, providing a stronger macroeconomic backdrop for credit fundamentals. As global capital, supply chains, and policy priorities fragment, Asia is benefiting from onshoring, intra-regional trade, and resilient domestic demand. Artificial intelligence, infrastructure, energy, defence and industrial capex are expected to fuel growth with Asia’s overall capex growth expected to be 7% over the next five years, around three times the pace 2023-25[xvi].

Conclusion

APAC is diverse and distinct, with a patchwork of legal systems, enforcement regimes, currencies, and business cultures, each demanding dedicated local knowledge. Unlike global players that may view APAC as one component of a broader strategy, managers with a singular focus on Asian private credit and teams based in the region are often better positioned to originate proprietary deal flow across multiple jurisdictions through deep on-the-ground networks and long-standing borrower relationships. Equally as important is the ability to structure robust security packages that can hold up under stress and, when necessary, to enforce collateral or navigate a workout through unfamiliar insolvency frameworks where court processes, creditor hierarchies and timeline expectations differ markedly from Western norms. These barriers to entry help explain both the attractive risk-adjusted returns available to established lenders and the limited number of managers with genuine track records in the region. ADM Capital has built such a track record, having deployed more than $6bn through over 200 loans over the past 28 years. The firm has successfully enforced security interests and managed workout situations in each of its core markets, providing first-hand experience in navigating local legal and regulatory complexities.

For investors re-evaluating their private credit allocations in light of compressed Western spreads, rising US defaults, opaque loss recognition practices and BDC liquidity concerns, a dedicated APAC sleeve offers something distinct: genuine scarcity value, lender-friendly structures, conservative leverage and portfolio diversification that is structurally uncorrelated with existing holdings. The key is accessing it through managers with long regional track records, demonstrated restructuring capability and the origination networks to source bilateral transactions on favourable terms.