Assets under management in the Asia-Pacific private credit market have quadrupled over the past decade, reaching $124 billion as of September 2023. Yet despite this impressive surge, the region’s private credit market still represents only about 6% of the global total.
This burgeoning market is driven by a combination of economic growth in the region and gaps in public market financing. The Asia-Pacific region contributes over 40% of global gross domestic product and is expected to drive over 60% of economic growth in 2024, but stricter bank lending policies worldwide and a decrease in high-yield bond issuance have created a void in traditional financing channels, particularly for small and mid-sized businesses. There is an estimated $2.4 trillion annual funding gap in the small and midsize enterprise sector across developing economies in the region.
Private credit has emerged as a crucial alternative for sustaining growth, particularly in rapidly growing sectors like education, technology, and health care.
One such alternative is equities-based financing. This strategy, pioneered by firms like EquitiesFirst, enables entrepreneurs and professional investors to obtain liquidity financed against their equity holdings. Given the gap between growth and financing opportunities in the region, this approach could be attractive for those who want to obtain the capital to help sustain expansion without sacrificing their long-term positions in assets like stocks and real estate.
The Equities-Based Approach
Historically, banks have dominated credit provision in the Asia-Pacific region, and they still account for 79% of all credit in the region. However, as economies grow, the share of private credit tends to increase over time, and many economies in the region are still developing. This shift presents an opportunity for specialized financing solutions to gain traction and meet diverse financing needs that banks cannot adequately address.
There’s a significant presence of family-owned offices invested in equities in the region, as well as a growing number of entrepreneurs and professional investors seeking alternative financing options. At the same time, the Bank for International Settlements found that lending to nonfinancial private companies as a percentage of GDP has declined since 2021.
EquitiesFirst has emerged against this backdrop as a prominent player in the expanding private credit market in the Asia-Pacific region. The company provides specialized solutions that complement traditional bank lending. Its approach is centered on offering equities-based financing to professional, accredited, and sophisticated investors. By leveraging existing stock portfolios, the firm’s clients access capital without diluting their ownership or relinquishing control of their assets. They are able to take advantage of illiquid equity holdings to catalyze immediate growth.
This financing model is particularly beneficial for midmarket companies and underbanked sectors that may struggle to secure traditional bank loans. EquitiesFirst offers an alternative financing avenue, enabling businesses and professional investors to capitalize on growth opportunities, fund expansion plans, or diversify their investments.
Private Credit and the Clean Energy Transition
The Asia-Pacific region’s transition to clean energy and sustainable development could be a key opportunity for private credit. Despite government efforts to subsidize sustainable economic growth, the World Economic Forum estimates there is a roughly $4 trillion annual funding gap in financing needed to reach the goal of net-zero emissions by 2050.
Alternative financing could play a role in bridging this gap, freeing up the capital needed to fund a transition that requires substantial investment across all energy value chain segments, from generation and storage to technology development and supply chain improvements.
A recent report by EquitiesFirst found that 83% of investors saw the impact of climate change as having a great impact on the region’s equity markets. This impact is tied to the risks of climate change, but also to the opportunities to fund mitigation and sustainability efforts.
Private credit is increasingly financing large-scale renewable energy projects in countries like China, India, Japan, and South Korea, which are aiming to install significant new solar and wind capacities over the next decade, with plans to reach a solar capacity of 577 GW and wind capacity of 408 GW.
The transition also calls for significant private investment in developing and scaling clean technologies, such as hydrogen production; carbon capture, utilization, and storage; and electric vehicles.
Meeting Demand for Alternative Financing
Despite some global headwinds in the private credit market, the Asia-Pacific region’s economic growth and the gap in traditional financing points to growth potential for specialized financing solutions like equities-based lending. Industries like clean energy, health care, and consumer-facing enterprises stand to grow along with fast-developing countries in the region like India, Indonesia, and Vietnam. Bank lending may struggle to keep pace with surging demand from businesses and investors seeking capital to fund growth and new opportunities.
This financing gap creates an opening for alternative credit providers capable of extending capital to underserved midmarket companies, entrepreneurs, and professional investors. While large fund platforms will likely dominate the biggest private credit strategies like direct lending, more niche specialty finance models like those offered by EquitiesFirst are poised to gain traction.
Disclaimer
This Document is intended solely for accredited investors, sophisticated investors, professional investors, or otherwise qualified investors, as may be required by law or otherwise, and it is not intended for, and should not be used by, persons who do not meet the relevant requirements. The content provided herein is for informational purposes only and is general in nature and not targeted to any specific objective or financial need. The views and opinions expressed in this Document have been prepared by third parties and do not necessarily reflect the views and opinions of EquitiesFirst. EquitiesFirst has not independently examined or verified the information provided herein, and no representation is made that it is accurate or complete. Opinions and information herein are subject to change without notice. The content provided does not constitute an offer to sell (or solicitation of an offer to purchase) any securities, investments, or any financial products (“Offer”). Any such Offer shall only be made through a relevant offering or other documentation which sets forth its material terms and conditions. Nothing contained in this Document shall constitute a recommendation, solicitation, invitation, inducement, promotion, or offer for the purchase or sale of any investment product by First Holdings, LLC or its subsidiaries (collectively, “EquitiesFirst”), nor shall this Document be construed in any way as investment, legal, or tax advice, or as a recommendation, reference, or endorsement by EquitiesFirst. You should seek independent financial advice prior to making an investment decision about a financial product.
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