top of page
Asia-Pacific Private Credit Newsletter
February 2021



The first quarter of each year sees institutional investors rebalance and reinvest last year’s gains into more attractively valued or diversifying positions. 2021 begins with investor risk appetite at high levels, driven by hopes that vaccines and stimulus will lead to the recovery and normalisation of economic activity. This year, the challenge is finding opportunities which offer genuine value and diversification.

The latest risk monitoring research from BlackRock points to relatively high cross-asset correlations between almost all asset classes outside of developed government bonds. Yet there is little incentive to increase holdings at current yields. So how should investors obtain diversification without sacrificing returns?

A review of current advice from the investment community reveals three strategic trends that may meet this challenge:

  1. Add to EM and Asian assets, which continue to be underinvested

  2. Allocate from traditional fixed income to growth-oriented fixed income (GOFI)

  3. Allocate from public to private markets

In this Newsletter, we examine these strategies and consider how Asian private debt might complement and enhance portfolio construction options.

Within a broad EM/Asia allocation

It is possible that we are at the beginning of a multi-year period of EM outperformance versus developed markets. Real GDP for emerging market and developing economies is expected to grow well ahead of major developed economies. Within EM, Asia is expected to grow 8.0%.

Given the levels of monetary and fiscal stimulus and reflationary expectations, asset allocator bullishness is to be expected. The December 2020 BAML Global Fund Manager Survey showed short USD and long EM asset positions, with the implication that a weaker dollar drives strong EM performance. A US-driven push on infrastructure may also support commodity prices, which is also an EM driver.

These are the orthodox pro-EM arguments, but the composition of public indices has changed dramatically since China entered global capital markets. For example, while the MSCI EM Index still covers 27 countries, constituent changes and capital flows have pushed concentration levels towards China, Korea and Taiwan.

Feb Newsletter - Ex 1_Resized


A decade or more on from “BRICS”, index performance is now dominated by large cap Asian tech companies. Allocation to EM is no longer an automatic diversifying play and the old relationships with developed markets may no longer hold. In our view, investors now need to drill into specific asset classes and strategies to construct the risk, return and diversification profile they are looking for. 

Towards GOFI

The 2020 recovery rally has made investment-grade corporate bonds – the conventional source of credit risk –expensive. With reduced return expectations, institutional investors seeking yield or income are allocating more of their portfolios to "growth-oriented fixed income" (GOFI) – in effect a broad bucket that can include investments in EMD, high yield, convertibles, senior loans, and absolute return/multi-asset credit strategies. 

Feb Newsletter - Ex 2_Resized

This reach for yield has led many investors to Asian HY bonds. With healthy yields of 7%+, expected low default risk expectations and stable demand and supply, this growing asset class has clear attractions. Yet again investors face the issue of concentration. Using the Bloomberg Barclays Asia USD High Yield Diversified Credit Index as an example, there are significant concentrations in China and construction of which investors should take note.

Feb Newsletter - Ex 3_Resized 2400x721.p

Those who wish to approach credit in a way that tilts to preferred geographies but retains genuine borrower diversification should take a closer look at Asian private debt.

From public to private

We continue to see private market investments occupy an increasing share of institutional portfolios. Private equity has been in focus for the last few years but is struggling to meet investor expectations. There are several factors for this, including record levels of “dry powder” and scarcity of genuine opportunities and historically high valuations. Some strategists argue that private debt offers superior risk-adjusted returns for investors who wish to harvest the illiquidity premium.

Returns for APAC buyout/growth funds have held up better but a similar dynamic is observed with elevated prices, increased competition, and limited exit opportunities weighing on future returns. There has also been a concentration in China and tech-focused areas.

In contrast, Asian private debt is still an emerging asset class. The Burgiss Manager Universe (which sources exclusively from LPs – other databases show higher numbers) counts just 34 funds across Asia representing USD16bn in committed value since 1997 through June 2020.

Furthermore, the asset class can be an effective complement to existing Asian and global private equity programs. Corporate direct lending funds display far fewer “J-curve” characteristics to those found in other private closed-end funds - the investment pace is faster, thereby dampening the performance impact of organisational costs, and profit generation is immediate from current cash yield.

Conclusion – Asian Private Debt can play an important portfolio completion role

Particularly in Asia and EM, public debt and equity markets are not deep or necessarily representative of underlying economies – private markets are even more important in these regions. A private debt strategy with broad APAC exposure can be one of the components that provides a completion role, without sacrificing returns. Our current pipeline shows a broad spread of geographic and industry exposures and - as we discussed in our last Newsletter - APAC SMEs (95% of the region’s economic activity) are starved of capital.

Feb Newsletter - Ex 4_Resized

With expected net IRRs of 12-14%, investors in Asian direct lending should be comfortably rewarded for the additional illiquidity and complexity, compared to EM equities or hard currency bonds. It may be time for investors to reconsider their EM/Asia allocation strategy, divert some capital away from the Alibabas and Tencents and towards SMEs that really need it.


The 2021 opportunity

As the world sees light at the end of the COVID tunnel, the private debt industry is looking back at its first real external shock since the GFC and positioning itself for the future.  By most measures, the industry has shown reliance and investors continue to increase allocations to the asset class, especially in view of declining yields in traditional credit strategies.

The Asian private debt story has not been derailed.  Though deployment slowed in 2020 as investors took time to fully analyse impacts on their existing portfolios and new investments prospects, 2021 is set to provide investment opportunities not seen in recent times, especially as vaccine programs roll out and travel becomes easier.


There are many factors that are contributing to this; the departure of many global banks’ balance sheets from the region and the low-risk appetites for new loans from the banks that remain in market is key, especially as we see end of formal and informal moratoria and many bank lenders deal with a significant rise in non-performing assets (which also need resolution).  In a region that was already short of capital for lending, this has made the supply/demand imbalance more acute.  COVID also reduced cross border M&A and investments significantly which are now beginning to pick up and are another driver of private credit volume. 


As always, borrowers need time to adjust to new realities in funding options – many larger and higher credit quality borrowers who, before the current crisis, had alternative financing options in banks and broadly syndicated markets have already turned to private credit providers – this is accelerating as many companies run down cash surpluses.


All of this is leading to a large and growing pipeline for 2021 with deals across the spectrum from small to large companies, conservative leverage, more lender-friendly structures, and enhanced pricing.


The journey for Private Credit during the COVID crisis


Special Report: How Private Credit, Subject of Scary Forecasts, Came Out a Winner | Chief Investment Officer (


SWFs focusing on partnering with managers, a win-win


State funds see direct-lending partnerships as growth engine (


Global and regional banks retrenching, opportunity for Private Credit in Asia…


Credit funds eye openings as more banks cut Asia lending | Alternatives | AsianInvestor

If you have an article on Private Credit that you think is interesting, please send it to us at


Zerobridge Partners Asset Management Limited is focused on giving institutional & high net worth investors globally access to APAC alternative credit opportunities. The strategy seeks to take advantage of the less developed banking and capital markets in the APAC region and capitalize on our strong proprietary deal flow.

Zerobridge Partners Advisory Limited is a debt advisory firm focusing on raising new capital, creditor negotiations and debt restructuring for companies in Asia-Pacific. We come with deep investment banking experience and a strong track record across multiple credit cycles in Asia.


Zerobridge Partners Asset Management Limited and Zerobridge Partners Advisory Limited   (together “Zerobridge”) have prepared this Newsletter (the “Newsletter”) for the exclusive use of the recipient.  The Newsletter is proprietary to Zerobridge and is intended solely for the information of the person to whom it has been delivered.  By accepting delivery of the Newsletter, the recipient agrees not to reproduce or distribute the Newsletter in whole or in part and not to disclose any of its contents to any other person except as agreed in writing by Zerobridge. 

The Newsletter is for informational and discussion purposes only and does not constitute a solicitation or an offer to buy or sell any securities.  Any offering of securities will only be made pursuant to a private placement memorandum and definitive subscription documents (the “Definitive Documents”), which will be furnished to qualified investors at their request in connection with any such offering.  The information contained in the Presentation is qualified by reference to the Definitive Documents, which will entirely supersede the Newsletter.

The investment contemplated by the Newsletter will involve significant risks, including the potential for loss of the entire amount invested.  Any securities offered will not be registered under U.S. or other securities laws and may not be transferred or resold except under certain extremely limited circumstances.  Prospective investors should pay particular attention to the risk factors to be appended to the Definitive Documents and should have the financial ability and willingness to accept the risk characteristics of the proposed investment, and to bear those risks for an indefinite period of time.

The Newsletter has not been submitted to, reviewed or approved by any regulatory authority in the U.S., Hong Kong, Cayman Islands or elsewhere.  Further, the Newsletter does not constitute financial, legal, tax, investment or other advice or a recommendation to make an investment.  Accordingly, recipients may not rely on the Newsletter for any purpose and instead must rely solely on their own judgment, analysis and review in evaluating an investment, and should obtain independent professional advice with respect thereto.

Although the Newsletter has been compiled from sources which Zerobridge believes to be reliable, Zerobridge has not independently verified the Newsletter and expressly disclaims any liability for the accuracy, completeness or reliability of the Newsletter, for updating the Newsletter, or otherwise in connection therewith.  The performance data contained herein is not indicative of future results, and there can be no assurance that comparable results to past performance will be achieved, or that performance targets will be met.

Certain information contained in the Newsletter constitutes “forward-looking statements”. The actual performance of the investment contemplated by the Newsletter may differ materially from the projected performance reflected or contemplated in such forward-looking statements.  Prospective investors should not rely on such forward-looking statements in deciding whether to make an investment.

The Newsletter is only intended for and will only be distributed to persons resident in jurisdictions in which such distribution is permitted by applicable law. Any investment contemplated by the Newsletter may not be eligible for sale in some jurisdictions.  Specifically, Zerobridge is not authorized under the Alternative Investment Fund Managers Directive (“AIFMD”) and no notification has been made to any regulator in the European Economic Area (“EEA”) in respect of any proposed investment opportunity.  As a consequence, no securities are being actively marketed by Zerobridge to any investor in the EEA. 

The information contained in the Newsletter should be treated in a confidential manner and any reproduction or distribution thereof, in whole or in part, or the disclosure of any contents therein without the prior written consent of Zerobridge is strictly prohibited.

bottom of page