Asia Pacific private credit - Complexity creates opportunity

February 17, 2026

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Supply chain reconfiguration, infrastructure needs and divergent banking behaviour are reshaping demand for capital, creating a landscape where complexity, selectivity and structure are defining the private credit opportunity set, argues Andrew Tan.

Our outlook for Asia Pacific private credit is shaped by a combination of structural re-orientation in global trade, sustained capital expenditure driven by security considerations and a banking landscape that is fragmenting rather than uniformly retreating.

In our view, the region is not experiencing a single macro narrative, but a set of overlapping themes that creates opportunity for private credit, particularly in the core and lower middle market.

A new capex cycle and transition

At a macro level, the dominant force in the region is the reconfiguration of supply chains. What began as a “China plus one” strategy has evolved into a much broader push for supply chain resilience and resource security.¹ Companies are no longer optimising purely for cost; they are increasingly willing to accept higher operating expenses in exchange for stability, redundancy and political alignment.

This theme is driving capex investment and acquisition activity across Southeast Asia and, in some cases, back into developed markets such as Japan, where corporates are seeking to onshore or near-shore technology-driven and strategically sensitive production that would previously have been outsourced.²  The result is a form of industrial renaissance across parts of Asia, coupled with significant technological upgrading and automation, all of which require flexible financing solutions that banks are not always able to provide.

Alongside this sits a substantial and ongoing infrastructure and energy transition requirement. Asia faces an estimated annual funding need of roughly US$2.7 trillion to support infrastructure development, decarbonisation and energy security.³ Governments and banks alone cannot meet this scale of demand, which is creating a structural role for private capital.

While this opportunity is well understood, it remains underpenetrated (Figure 1), particularly where projects or platforms require bespoke structures, longer tenors or risk profiles that do not fit neatly within traditional bank balance sheets.

Banking system inefficiencies and a ‘complexity’ premium

The banking backdrop in Asia is more nuanced than in the US or Europe. Domestic and regional banks, which are not directly constrained by US or European regulatory regimes, remain broadly willing to lend and continue to deploy balance sheet.⁴ 

However, global banks operating in the region are increasingly preparing for Basel IV and focusing on risk-weighted asset optimisation.⁵ This has led to a more cautious approach to balance sheet usage and a greater willingness to distribute or offload risk.

The coexistence of these two banking systems is creating inefficiencies. In situations where regional banks cannot fully meet borrower requirements, and global banks are selectively stepping back, private credit is able to play a complementary role rather than simply replacing bank capital.

Meanwhile we are seeing a bifurcation in deal flow. In the upper middle-market, sponsor-driven acquisition financing space in Asia remains competitive, with banks still very active and pricing under pressure. However, in the core and lower middle market we see an increase in structured lending transactions that reflect the specific complexities of the region.

These complexities can take many forms, from business models that are difficult to underwrite within standard bank frameworks, to capital structures requiring mezzanine or second-lien solutions, to cross-border footprints spanning multiple jurisdictions with differing legal, regulatory and security regimes.

Asia is not a harmonised market, and the ability to structure transactions that provide lender protection across several countries requires specialized expertise and experience, which can be an additional source of return premium. Transactions are highly structured, with extensive protections and customised features designed to manage complexity. This approach provides the opportunity to generate compelling results without relying on cyclical momentum or market beta.

Capital follows selectivity

Geographically, opportunities remain highly selective. We see attractive risk-adjusted returns in Hong Kong and the broader Greater China ecosystem, which has been neglected for an extended period and now offers improved pricing and structures. We also see pockets of opportunity across Southeast Asia, including Malaysia, Indonesia and Thailand. Despite recent uncertainty in some of these countries, we believe there are attractive macro and social economic tailwinds that present opportunities in some of these markets, particularly with market leading companies.

In Japan, rising inflation is beginning to alter long-standing corporate behaviour. Abundant domestic liquidity and historically cheap bank financing have reduced the urgency to grow, but inflationary pressure is now pushing corporates to pursue expansion, acquisitions and outbound investment.⁶  As Japanese companies increasingly look beyond their domestic market, we believe private lenders are becoming more relevant as a financing partner, particularly where transactions fall outside the ultra-low-cost domestic banking system.

Investor appetite for Asia private credit is also improving. We are seeing renewed interest from US, European and Middle East investors and continued engagement from global allocators who are looking to diversify incremental capital away from the US. In a declining interest rate environment, we believe Asia remains attractive due to relatively high yield levels and the prevalence of fixed-rate transactions, which help preserve returns as base rates fall. This contrasts with other developed markets where declining rates directly compress income.

In terms of risk profile, we have not seen a systemic rise in defaults across the Asia Pacific region. Outside of the ongoing Chinese property crisis, which continues to work through the system with elevated defaults, credit performance has been broadly stable. That said, in markets such as Australia and India, where both domestic and foreign private capital has been raised aggressively, we have observed spread compression and some erosion of covenants and protections. This creates the risk that mistakes will emerge over time, particularly if growth slows or refinancing conditions tighten. At present, however, these risks remain idiosyncratic rather than systemic.

A structurally-driven opportunity

Looking ahead, we believe the most significant macro risk for the region is continued uncertainty around global trade policy, particularly shifts in US and European tariff regimes. The erosion of a predictable, rules-based trading framework complicates corporate planning and investment decisions. However, this uncertainty is not purely negative. It is accelerating a re-orientation of trade within the Asia Pacific region itself.

Companies that previously relied heavily on the US or Europe are increasingly seeking to deepen intra-regional Asia Pacific trade relationships, which are perceived as more stable and more conducive to long-term planning. This shift is likely to support incremental capex, cross-border M&A and regional consolidation, all which feed into demand for acquisition and growth financing.

While bank retrenchment is not as pronounced as in the West, regulatory divergence, supply chain re-engineering, infrastructure needs and intra-regional trade growth are collectively creating sustained demand for private credit solutions.

Our ability to navigate jurisdictional complexity, maintain discipline amid selective competition and focus on structuring deals to afford us robust protection, positions us well to capture these opportunities while managing downside risk in an increasingly fragmented environment.

References

1.Supply chain digital, as of 21st January 2025. Supply chain diversification poised to enable APAC growth.
2. Boston Consulting Group, as of 18th July 2025. Balancing cost and resilience: The new supply chain challenge.
3. Asian Transport Observatory, as of February 2025. Asia and the Pacific’s Transport and Investment Outlook 2035
4. IFR, as of 22nd December 2025. IFR Asia Asian private credit markets roundtables
5. Norton Rose Fulbright, as of November 2025. Regulation around the world – Basel 3.1 implementation
6. Financial Times, as of 12th March 2025. Japan struggles to adapt to an era of rising prices.

 

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