Research shows institutional investors are increasingly turning to private credit, but the APAC region’s relatively small market size remains a key constraint.
Asset owner appetite for private credit investments showed no signs of abating, according to Capital Group.
The firm’s research – surveying 300 institutional investment professionals across Asia Pacific, EMEA, and North America – discovered 41 per cent of global respondents are set to raise their private credit allocations in the next 12 months.
Breaking this down by region, while 50 per cent of US investors plan to increase private credit allocations, a lesser 30 per cent in Europe and 23 per cent in the Asia Pacific plan to follow suit.
Reasons for increased confidence in private credit include the potential for higher returns, cited by 80 per cent of global investors, diversification benefits (63 per cent), and downside protection (50 per cent).
New allocations will mostly be directed towards the US market, followed by Europe, Capital Group said. Interestingly, APAC asset owners are significantly more likely to grow their US allocations (49 per cent) than allocations within their home region (34 per cent).
A key reason underpinning this, according to the research, is that investors face difficulties identifying suitable opportunities within the region’s relatively smaller and less developed private credit universe.
“The Australian market is developing but it’s not an institutional size of allocations. You’d be hard pressed to allocate AU$300–AU$500 million to these strategies and if you did that, it would utilise a lot of the capacity of the managers that are out there,” Capital Group’s report said, quoting an investment committee member at an Australian endowment.
“Whereas it’s very easy to look at the US and find managers who can take those kinds of debt sizes for you and deal with them very easily.”
Across the board, 60 per cent of global investors surveyed said private credit is shaping up to play an increasingly vital role in their overall investment portfolio in the future.
Geopolitical tensions spur private asset demand
Coinciding with Capital Group’s research, new findings from bfinance similarly demonstrate institutional investor demand for private assets.
The global investment consultancy’s latest quarterly Manager Intelligence and Market Trends report revealed private markets continue to be the dominant area of institutional mandate activity.
Unlisted assets represented 50 per cent of all manager searches in the past 12 months to 31 March 2025, bfinance said, a rise from 43 per cent in the year prior.
In particular, institutional investors exhibited strong demand for private debt, accounting for 21 per cent of manager searches over the past year. This included direct lending, semiliquid vehicles, and asset-backed strategies.
Infrastructure investment also captured investors’ attention, with mandates in this space rising to 13 per cent of private market searches, up from 7 per cent in the year prior.
“As global markets contend with rising volatility, inflationary persistence and geopolitical disruption, investors are rethinking how risk is allocated – not just how much risk is taken,” said Oliver Wade, associate in the investment content team at bfinance.
“We’re seeing a pivot toward asset classes and strategies that offer both adaptability and resilience: private debt, multi-sector credit, real assets and uncorrelated hedge fund styles. Manager selection has become a more targeted exercise, with allocators looking for precision tools to match a more complex environment.”
