Beyond tariffs: Why megatrends will determine the future of Asian private debt

August 12, 2025

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Despite geopolitical headwinds and cautious capital deployment, Asian private debt could be primed for the next phase in its evolution. Andrew Tan explains how long-term structural themes are reshaping the opportunity set.

Few Asia Pacific private debt managers would dispute that 2025 has been disrupted by tariff turbulence, a seemingly endless wave of policy noise that has led investors and borrowers to reassess strategies and reconfigure pipelines. But while this period of recalibration has slowed activity, I would also argue it has highlighted the maturing nature of the asset class.

Rather than retrenching, many Asian businesses are adopting a more nuanced approach. When assessing the impact of tariffs on our own portfolio companies and new opportunities, businesses with a regional or domestic focus look relatively insulated from first-order effects. And while second-order effects, such as softening consumer sentiment and reduced appetite for capital expenditure, remain considerations, we have yet to see this materially curtail deal flow.

Instead, we are seeing a more defensive and selective market, but one still open for business. In recent months, as visibility around tariffs improved, we have seen companies and sponsors "pick up their pencils" again, not to embark on major new investments, necessarily, but to think more strategically about where capital can work hardest.

Discipline matters

Interestingly, spreads have continued to tighten across much of the region, even in the face of geopolitical noise.¹ This may reflect confidence in the market’s quality, but also raises the bar for managers when sourcing opportunities.

This is where local context and regional expertise matter. Asia is not a monolith. Dynamics in India differ sharply from those in Indonesia, Australia, or Hong Kong. Success in private debt requires more than capital: it demands underwriting rigour, flexibility and a keen understanding of how macro and micro forces will intersect at the company and sector level.

Rise of recaps

A key development this year has been the part-thawing of M&A activity after five years punctuated by shocks: COVID-19 in 2022, soaring inflation and interest rate hikes in 2022-23, and now tariffs. In the first half, APAC dealmaking reached a record high of US$572 billion, with buyouts surging 168% year-on-year to US$84.4 billion.²

This is not just a story of volume. With exits still challenging due to persistent inflation and geopolitical caution, sponsors are increasingly conducting dividend recapitalizations to return capital to investors. In Asia Pacific (excluding Japan), such transactions reached US$1.7 billion in the first half, up 18% year-on-year and a three-year high.³

From a private debt perspective, these deals may fall into the “business as usual” camp, but still represent meaningful, recurring deal flow. Meanwhile, more idiosyncratic opportunities, such as capital solutions and restructurings, continue to emerge, albeit episodically.

With a little help from my friends

In response to external pressures, particularly US trade policy, we are also seeing a renewed emphasis on regional cooperation. The completion of China-ASEAN Free Trade Area 3.0 negotiations is a milestone, introducing new chapters on the digital economy, green economy and supply chain connectivity.⁴ Although formal ratification is pending, closer economic integration is firmly on the agenda.

Similarly, free trade agreement talks between China-Japan-Korea have resumed after years of stalling,⁵ while we are also seeing more constructive dialogue between the European Union and Asia-Pacific nations via the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and ASEAN-EU frameworks.^6,7 

While these initiatives will clearly not bring deal flow overnight, they at least provide institutional clarity and longer-term momentum for cross-border capital formation and supply chain development. In our view, this should create a more predictable environment for private debt investors over the medium and long term.

Great expectations

Preqin projects the Asian private debt market could grow from US$107.1 billion in 2024 to US$158.5 billion by 2030.⁸ That prediction may sound bold given the fundraising challenges of recent years, but it is not without merit.

In markets like Australia and India, the institutionalization of private debt is accelerating rapidly. Regulation is nudging banks out of certain lending segments, opening space for alternative capital.⁹ More players are entering the fray, deal sizes are growing, and sponsor protections are evolving in line with global norms. Legal frameworks are strengthening, documentation is becoming more standardized, and investor bases are also diversifying.

Digital decade

In addition to shifts taking place in the lending market, other long-term, structural themes could have a transformative effect on the region’s private debt market.

Arguably the most exciting is digital infrastructure. This category spans everything from hyperscale data centres and cloud services to AI-related software and GPU-as-a-service models.

The numbers look compelling. Cushman & Wakefield forecasts that APAC colocation data centre capacity will rise 127% by 2030, requiring approximately US$156 billion in capex.¹⁰ The region is still underserved relative to the US, with substantial catch-up potential.

For lenders, this could present opportunities in everything from financing chip manufacturers to the physical cooling and power systems that make data centres viable. As AI and cloud adoption accelerate, demand for scalable, decentralized computing infrastructure will only grow, in our view.

Cleaning up

Another powerful long-term trend is the transition to clean energy. According to the Asian Development Bank, developing Asian economies must ramp up annual clean energy investment to US$1.4 trillion to meet decarbonization targets.¹¹

This goes beyond solar and wind. There is also growing need for transmission infrastructure, battery storage and even specialist waste treatment facilities.

As regulatory frameworks mature and corporate sustainability goals deepen, financing needs should logically increase. We think debt is well-positioned to support these efforts, particularly where projects are regional or sub-investment grade in nature.

New frontiers

While still in its infancy across Asia, social infrastructure is also starting to gain investor attention. This includes critical areas such as student housing, healthcare and education facilities.

Demographic shifts - urbanization, rising middle-class populations, ageing societies - are creating long-term demand.¹²  In Europe and the US, private credit has long played a role in financing such assets.¹³ Asia could be next. The opportunity to combine social utility with steady income streams is increasingly attractive to institutional allocators.

Next chapter

While 2025 has brought its challenges, we are seeing the APAC private debt market maturing beyond plain vanilla direct lending. Looking ahead, the opportunity set includes digital transformation, energy security, social impact and capital solutions.

Will we reach US$158 billion by 2030? Time will tell. But with the asset class set to play a big role in financing major thematic opportunities over the coming decade and beyond, we believe this is a market firmly on the rise.

References

1.Private Debt Investor, ‘Asia-Pacific fundraising is playing the long game,’ April 1, 2025
2.Mergermarket, ‘M&A highlights 1H25,’ June 2024, 2025
3.Private Equity Wire, ‘PE firms turn to Asia loans to fund dividend payouts,’ June 25, 2025
4.The State Council, People’s Republic of China, ‘China, ASEAN fully complete negotiations on CAFTA 3.0,’ May 21, 2025
5.The Korea Herald, ‘Pushed by Trump's tariffs, East Asian rivals revisit free trade pact,’ April 15, 2025
6.The Association of Southeast Asian Nations, ‘Joint Press Release of the 32nd ASEAN-EU Joint Cooperation Committee (JCC) Meeting,’ June 16, 2025
7.European Commission, ‘Joint read-out from the meeting between President von der Leyen and Prime Minister Luxon,’ June 23, 2025
8.Preqin, ‘Alternatives in APAC 2025,’ June 19, 2025
9.Fitch Ratings, ‘Rising Non-Bank Credit Intermediation in Asia-Pacific Emerging Markets,’ October 31, 2024
10.Cushman & Wakefield, ‘Asia Pacific Data Centre Investment Landscape,’ June 11, 2025
11.Asian Development Bank, ‘Energy transition readiness assessment for developing Asia and the Pacific,’ April 2025
12.Japan International Cooperation Agency, ‘Estimating Social Infrastructure Needs in Diverse and Dynamic Asia,’ March 2020
13.Preqin, ‘2025 Global Report: Infrastructure,’ December 11, 2024

 

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