KKR & Co. and Babson Capital Management LLC are looking to take advantage of a pullback in lending by banks in Asia, after funds active in the region raised a record amount from investors.
While traditional banks dominate the lending business in Asia and financing by firms that lend privately is still small, KKR, Babson and Adamas Asset Management HK Ltd. expect it will grow in 2016. Funds focused on the region raised an unprecedented $5.5 billion of fresh capital from investors in 2015, according to figures from data provider Preqin.
With stricter capital and liquidity rules under the Basel framework curbing banks' ability to lend worldwide, other investors are stepping in to fill the gap. Slowing economic growth in China and other parts of Asia may also create more distressed debt that private funds can profit from, as shrinking returns globally on fixed-income portfolios fuel demand for private-credit strategies. While the U.S. and Europe have led the development of such investments, Asia is now getting in on the act, according to Barry Lau, managing partner at Hong Kong-based Adamas.
“Banking regulation has already had an impact on global lenders and will increasingly have more of an impact on Asian banks' ability to lend across Asia,” said Adam Wheeler, Sydney-based co-head of Asia Pacific private credit at Babson, an investment manager that oversees more than $200 billion in assets globally. “We definitely see the market opportunity for private debt growing here.”