I work at a reasonably sized credit fund, focusing primarily on structured credit, including asset-backed securities and related strategies. Lately, I’ve been observing a compelling risk-return arbitrage in Southeast Asia, the Middle East, and the Indian subcontinent—these regions offer attractive senior credit opportunities with no real equity / mezzanine exposure, and loan performance has been solid.
Given this, I’m considering starting my own shop, likely in the $20 million range, to capitalize on these inefficiencies. My question is for anyone who has either launched a new asset class in a developed market or built up on a new industry in an emerging market—how do you establish a reasonable baseline for what feels comfortable when venturing into something relatively untested?
I’m already actively involved in this space and deploying in those regions, but I feel a bit underconfident given the market dynamics here. Across these regions, I haven’t seen much structural innovation despite the fact that market participants are already exposed—directly or indirectly—to more sophisticated financial structures. It makes me wonder: are these structures hiding in plain sight but simply not utilized because the existing business models still work well?
It seems counterintuitive, especially given how fast financial services have evolved and how efficient information flow has become. While a lack of knowledge transfer might have been an issue in the 1950s—where financial expertise from Europe wouldn’t necessarily translate to Asia—over the last decade or so, the landscape has been much more interconnected. So, I’m just curious—what am I missing here?
Long rant above, below are two questions: 1. What drives the flow of financial innovation between geographies? In this case, I’m curious why certain structured credit strategies haven’t been widely adopted in regions like Southeast Asia, the Middle East, or the Indian subcontinent despite market participants being exposed—directly or indirectly—to sophisticated structures. Is it purely regulatory inertia, market familiarity with existing models, or a lack of local precedent? What typically enables financial innovations to migrate successfully from one region to another? 2. How should I think about the transition from a large fund to a small, self-funded self-raised fund? Beyond the economics and risk-return trade-offs, I’d love to hear from anyone who has left a large institutional setup to start something much smaller—say, a $20 million shop. What were the biggest unexpected challenges, and how did you navigate them? What would you have done differently in hindsight?
Based on the most helpful WSO content, here are insights addressing your questions:
1. Drivers of Financial Innovation Flow Between Geographies
2. Transitioning from a Large Fund to a Small, Self-Funded Shop
In summary, the flow of financial innovation is often hindered by regulatory, cultural, and market-specific factors, while transitioning to a smaller fund requires careful planning, a strong niche focus, and leveraging local expertise to overcome operational and credibility challenges.
Sources: Q&A: Megafund Asia Private Equity, How do distressed funds operate in Asia?, Credit Hedge Fund opportunities, State of Credit markets now and in the future?, Living in Asia
Pardon my misunderstanding, but what are you referring to by flow of financial innovation? On the product side i.e., BNPL loans don't exist in India, or on the structuring / financing side i.e., warehouse loans don't exist in India?
If you're referring to the financing side, my two cents is that different countries have different structural requirements - trust / trustee structures are a must in Latam but not in the US due to BK law, lender protections, etc. I don't think there's a clear reason why warehouses can't exist in India (with some additional trust / trustee structure), but agree with you it's not a satisfying answer that structured finance just hasn't developed much in some countries like India yet.
Not sure what type of companies you've looked at, but have come across many foreign startups who understand the basics of structured finance and having US-based investors / advisors has helped.
Can't exactly help you on the startup fund side, but I'd think carefully about risk / reward and what you know vs. don't know. From what I've heard there are many specific country concerns (India and some African countries come to mind) around consumer lending and that can definitely impact what your focus / realistic set of opportunities is.
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