KKR eyes “rare opportunity” in Asia’s private credit market
Asia’s private credit market presents a rare opportunity, according to KKR.
The alternative asset manager said undervalued assets, strong demand for credit and structural market inefficiencies make it an attractive place to invest.
It said the wave of defaults amongst Chinese real estate developers prompted a reset in asset valuations, dramatically shifting the composition of the market. In KKR’s view, the resulting sell-off created attractive entry points for investors, offering relative value compared to the US and Europe.
“Asia Pacific continues to march to a different economic beat compared to both Europe and North America. Broadly, the economic outlook continues to gain momentum following the countries’ re-opening post COVID. We are energized by the opportunity this pickup in activity presents, including an uptick in business travel and tourism that has spurred positive economic activity across the region. Importantly, when the Fed begins its easing campaign, both lower interest rates and a weaker US dollar could become additional tailwinds to growth,” the group noted.
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It also added that the market is more diversified than ever before and is rapidly growing, with an increased number of issuers in need of financing amidst a lack of supply. It pointed out that around 56 per cent of outstanding high yield debt is set to mature in the next three years, and around 21 per cent by the end of 2025.
“We believe issuers will fill the gap using both private and broadly syndicated credit markets,” KKR said.
It added: “Despite the positive structural evolution in the market, we still have not seen valuations revert to normalized levels. At $87.63 the weighted average price provides attractive upside price convexity alongside a compelling 10.0% effective yield, as of January 31, 2024. We believe this is an attractive entry point relative to the opportunity set in Europe and in the US.”
KKR raised its inaugural Asia Credit Opportunities fund in 2022, attracting $1.1bn (£860m) in capital.
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