Best direct lending shops in Asia
Hi folks,
Have seen a lot of interesting discussion on direct lending (DL ) and key firms in the US. However a quick look online shows most firms mentioned in these discussions are not present in Asia - is this a reflection of how small the DL market is in Asia? Can anyone shed light on the Asian scene / share the most active players? Cheers.
Hey Associate 2 in CorpDev, I'm here because nobody responded to this thread after a few days...maybe one of these resources will help you:
More suggestions...
Hope that helps.
Look better, most of the big names have a presence. Either direct or via a local partner.
Asia Pacific is a big world and I would include Australia, which is an important market. The below would be the key players, but note there are smaller funds that operate in syndications/CLO markets as well. The list also excludes other credit funds based in London/NY that cover Asia from those offices (e.g. Carlyle Credit Opportunities, EQT etc.)
Bain Capital Credit– strong presence in HK and Australia ($39BN). Do senior loans all the way down to special situations
HPS Investment Partners – leading player in Australia, NZ and strong presence across Asia Pacific. Top 5 global Senior, Unitranche, Mezz, Pref equity player ($60BN globally, ~$35BN in private credit)
Partners Group – strong presence in Asia and Australia with offices in Singapore and Sydney ($20BN globally)
KKR Credit– mixed with special situations credit, but decent presence in HK and Australia ($70BN across public and private credit)
Barings – strong platform but smaller tickets
Challenger– Australia only, part of the large annuity fund manager
Tor Investment – HK based credit manager ($1.1BN)
SSG Capital Management – HK based and works across credit and special situations (~$2.2BN)
Apollo Credit – based in HK and Singapore. Think they cover APAC from both offices. Not much presence in Australia. ($195BN globally, not sure how much in Asia)
Intermediate Capital Group – based in Sydney, HK and Singapore. Active across senior, mezzanine and equity though smaller tickets/syndications. ~EUR17BN in credit globally
OCP – special situations player based in HK and Singapore which covers APAC including Australia. (~$2.25BN)
PAG Credit – dominant player in direct lending and special situations credit. PAG are a well known PE and real estate player in Asia. FUM ~$1BN+ for credit
These firms are the majority of market share, though there are a lot of smaller players who are more in the syndication market / CLO vs. as a direct lender of senior or mezzanine loans. The megafunds (HPS, Bain, KKR, Apollo) have the majority share in direct/bilateral loans and deals.
An important factor here is that investment banks still continue to underwrite deals here so are a competitor to direct lending funds. But the market is increasingly becoming more favorable to non-bank lenders given the pull back from banks generally as we have seen in the US 10 years ago. Because of this structural shift, direct lending and private credit funds are becoming increasingly active and prevalent in this market
Thanks for this! Very useful insights - had a few questions and was hoping you could share your views on: 1. On the banking side, would you happen to know which ones are the most active lenders? 2. Also, how do credit funds compete against each other for deals - I imagine it comes down to debt pricing, leverage multiple, covenants? Or are there other key considerations too 3. To the point on megafunds having the most share in bilateral loans - wouldn't the larger companies who raise this debt prefer to go through auctions to minimise debt price? Curious about this
Thanks for sharing.
Please see response below:
1) Credit Suisse is a dominant player in Asia and Australia. As with their US Leverage Finance platform, they have a very strong Leverage Finance Business. They have done the majority of large deals in Australia for example, including underwriting KKR's acquisition of MYOB, APAX's acquisition of TradeMe and TPG's acquisition of Greencross. They also have a business called APAC Financing Group, which is their Principal Investing business which does on-balance sheet investing, somewhat like Goldman's SSG but more in performing credit not distress. The other dominant players are Goldman Sachs (at least so in Australia), J.P. Morgan and Deutsche Bank (have a very good Principal Investing book).
2) Larger credit funds have the benefit of scale. Increasingly borrowers are preferring to deal with just one lender, especially if their investment thesis involves growth capex/accordion upsizing down the line, given it is easier to deal with one lender directly than a syndicate of 10 lenders. So, if large credit funds can do 100% of the hold, then that is a big advantage. But you are right, the key competitive dynamics are as you mention, leverage, pricing, covenants, other undertakings etc. Reputation and credibility may be another factor, but is secondary.
3) Yes each borrower would usually go through a process, or at least, talk to a few lenders concurrently. Eventually as the deal gets towards the pointy end and to close the list naturally narrows. My comment around bilaterally was more around borrowers dealing directly with lenders in a process, not through an investment bank or debt advisor. The people in the middle are becoming less relevant, especially on the sponsor side.
This is a fantastic outline of the market in every aspect. Kudos
Indeed it is - if anyone could add to the lev fin scene in Asia that would be great
Currently work for an abovementioned PE's London office and covers APAC special sits. Would like to supplement what NicholasLeeson mentioned and add a few data points.
Bain Cap Credit: ~$4b AUM in Asia, and actively invest across cap structure (from Senior Secured direct lending all the way to post-reorg equity) and in every trending sectors (India ARCs, China NPLs, etc.). The firm closed a $1.3bn Asia Special Situations fund last year.
PAG: ~$5b AUM in credit/absolute return. Not well known on Wall Street but it is Asia's homegrown mega fund and consistently outperformed MFs from New York in Asia. PAG closed a $1bn Asia Loan Fund IV and $1bn Asia Special Situations Fund III earlier this year. The firm is not very active in India, but it was the first MF rasing standalone China special sits fund ($180m in 2017).
Oaktree: ~$5b AUM in Asia credit. Oaktree just raised $2bn for its Asia Special Situations Fund VI this year. From what I heard, Oaktree's private debt investment in Asia is highly real estate focused.
SSG: ~$6.5bn AUM. The firm is formally known as Lehman's Asia Special Situations Group (LBASSG). For starting, they purchased a big chunk of Lehman's Asia prop exposure back in 09'. AUM splits between direct lending and distressed credit. The firm is active in every submarket in Asia, with a strong presence in both onshore China and onshore India. SSG closed its SSG Capital Partner V for $2bn (the largest alternative credit launch in Asia) in 2018, and I heard that these guys are raising another fund in similar size this year.
OCP: ~$1.5bn AUM. Strong presence in Australia and SEA and just started to build its China franchise. Not active in the India market. Raised a $500m fund last year.
Clearwater/ADM/Adamas: These funds are used to be in the same tier as PAG credit and SSG. But they failed to expand their AUM in the past few years (probably due to mediocre return?). Clearwater's strategy more towards HF and actively involves process-driven distressed credit investing.
Tor/Arkkan/BFAM: Three Hong Kong-based credit HFs with White dude founders. These funds won't touch vanilla direct lending deals. But if situations are complex enough and yield is good, they would take a look. Tor is founded by Patrik Edsparr, former CEO of Citadel Securities and JPM's global head of fixed income. Tor just raised a $1bn Asia credit fund this year. Arkkan is founded by Jason Brown, former GS global head of special situations. BFAM is a multi-strat shop (distress credit, risk arb and global macro), founded by Benjamin Fuchs, former Lehman/Nomura Asia prop trading head.
Farallon/Lone Star/Avenue/DK/CarVal/Varde: Not your usual direct lending fund. But just like Tor/Arkkan/BFAM, they're willing to participate in secured or mezz or DIP loan if the situation is "interesting" enough.
KKR Credit: KKR investing in Asia direct lending mainly from its global special sits fund, and its Asia credit business scatters across its regional offices in Asia. Mumbai and Sydney office runs their own direct lending/special sits team, and seems to perform well. In Hong Kong, KKR's Asia Credit head Stuart Blieschke (used to co-run PAG's credit investing) left last year, and KKR has transferred some seniors from New York's Americas Special Sits Group to rebuild its credit franchise this year.
HPS: As mentioned, one of the several big direct lending players in US, together with Ares and GSO, is not very active in Asia, outside of Oceania. Zero presence in China and India (both onshore and offshore) and very limited presence in SEA.
Apollo: Around 1bn AUM in Asia ($600m Asia RE fund and a $1bn JV distressed debt fund with IFC). Mostly in real estate PE and debt. Doing Okay in India and SEA but negligible presence in Greater China (except Hong Kong).
CDH Capital/CITIC Capital/Everbright Holding/Shoreline Capital/DCL Investment: These funds are extremely onshore China-focused. CDH, CITIC and Everbright are the largest mezz funds in China. CITIC and Everbright have the opportunity to involve in hairy onshore stressed/distressed situations because their parent companies are Chinese SOEs. Foreign alternative credit funds, ever PAG/SSG (relatively Chinese), don't have their access and network in China. Shoreline and DCL are the first NPL investors in China since the early 2000s and later expended their footprint to direct lending.
Intermediate/Partners Group/Macquarie: Active in Australia but not pan-Asia presence.
Other names worth to mention: GS ASSG/DB SIG/CS AFG/MBK/BlackRock
Solid input mate +1
This is a phenomenal post as well and along with the other one I highlighted, should be pinned somewhere.
My few observations, some of which may be out of date.
Oaktree is an interesting one because until a few years ago they had a small EM product which appeared to be mostly LATAM focused with maybe a few guys in Asia, but they rarely talked about it presentations. They tried to raise a product a long time ago which never took off and Howard Marks himself personally told me how they "hadn't figured out how to develop a proper Asia product." I wonder if it's the EM product re-packaged and with a bigger local team...
SSG - when I last checked with them was very strong in India, which is a market where everyone (especially the likes of ADM, and Clearwater to a much lesser extent) didn't do well/blew up, and were very solid in Indonesia, which stands out now that Ray Zage has left Farallon/Noonday to do his own thing. Ray was (or still might be) the king of lending to select Indonesian families.
On Tor/Arkkan/BFAM - I can say that for sure they have looked at direct lending deals, the issue really being tenure/liquidity given their fund structures. Given that they usually go the liquid route (ie buy bonds etc) especially then the backgrounds of their teams.
Apollo is a name I have not heard in Asia for a while as being really active. Chin Hwee Tan used to run it and didn't make any money.
Hopefully this adds a little color to the other great posts in this thread
Great stuff mate +1
Have heard Ray Zage's name quite a bit but can't find much about the deals he's done - anyone has an idea? Or knows how he got his name in the biz?
Good stuff here gents, thank you all -
One more question, there's always talk that Australia has a more favourable regulatory regime for creditors vs. Asia, can anyone elaborate on this?
"Asia" is large and diverse. In general I think you mean developing or emerging Asia rather than SG/HK which are developed and have a strong legal framework and efficient (in general) governments/bureaucracies and most stuff (ie rules) is transparent and generally followed. This means that counterparts will follow the rules or could face actual contractual consequences that are actual enforceable in the court of law.
Australia is a developed country with everything that goes with it. There are strong and established legal systems in place, everyone generally knows the rules and follows them/works with them, the political scene is stable, high standard of living, trained bureaucrats, less corruption etc etc etc.
Emerging Asia is different. There is a reason returns are often more juicy or the underwriting case has to take account for it. This is because although there are often laws and regulations written, they may not be enforced, or enforced evenly. People in government may be and are corrupt or easily influenced since countries are in general, poor. As a result laws are often flouted, openly or with officials looking the other way, foreigners are generally distrusted and have less/no actionable legal rights that will actually work and so counterparts can and will openly screw you in any way possible. This is why personal relationships and trust are so important.
The examples below are stuff i made up but based on things I have seen/heard in my professional and personal life.
OZ/DM: You lend money on a secured basis to some dude. His business does not recover and goes under. You get to seize his assets. He takes you to court. Or he refuses to let you take his assets, so you take him to court. Some process ensues, you probably get the assets though it takes some time, but you were prepared for that since there is precedent for all of this. You will know what steps to take, which lawyers to contact and will have some confidence that things can and will go your way since you can trust the contract you signed with him and its enforceability in the court of law. Or he just says "yep, take my stuff, that's the deal."
EM Asia: You lend money on a secured basis to some dude. His business does not recover and goes under, or you find out that the accounting was all fraud anyhow, and that he took the money and moved it offshore. You get to seize his company (not personal) assets. But when you physically do so, you see that nothing is actually on the plot of land. It's gone. Now you have some land that you may not be able to sell and the local authorities don't like you since they are friends with the guy/he's bribed them/is prominent/went to school with them etc. Or you are informed that it's now the government's land. Or that due to some recent zoning restriction that you can't own it but he had built his factory before said zoning rule and so was grandfathered in but now that title has changed.... Or that you can't develop it or sell it or do what you want with it. The guy takes you to court and makes up all kinds of stuff. His local buddies in the court and government support him and through a number of mishaps, delays, changing of officials, re-writings of court briefs (seriously) somehow rule against you or delay stuff for so long that it ends up not being worth your time such that even if and when you do get your way in court, that it has been a decade. In the meanwhile he has started another business nearby with the same people and assets under a different name, probably with some of the said money you lent him. Knowing this, the guy smiles and either lets you suffer, or comes back and offers to buy your loan back at 20-30 cents on the dollar...
Tired reading this? So am I. But that's EM for you...
Hope this helps
Dang that was a good example. +1 mate
Folks, there's a lot of good commentary here and thank you for that. Just to understand better, for the DLs in APAC, does anyone know which of them provide acquisition financing? Most of them appear to cover special situations mostly.
Also, can someone elaborate on special situations or provide some examples please? Thanks guys
Special situations in Asia is a huge umbrella that captures various types of financing. It could be acquisition financing for the a target business, financing for purchase of fixed assets, bridge financing for start-ups in between funding rounds...they fill all sorts of cracks that couldn't be filled by traditional banks either because of the longer process or the more stringent requirement on structure, covenants, securities, etc.
There seems to be a lot of growth potential in this space esp in the MM segment but it all comes down to the local network and relationship with the businesses. Interested to hear others views on this.
Good stuff - yes would be interesting to have some examples of financing deals and a sense of how lenders get comfort around challenging deals if anyone can provide it!
Reviving this old thread. Lots of good commentaries here regarding credit in Asia. Thanks for this Jamoldo NicholasLeeson SeniorUnsecured!
I would like to hear your thoughts on:
1. As a junior, which would provide better growth, experience, and exposure? Would this be in one of the funds or in the SSG / Principal Investments Group within a bank? How would the experience vary between the two?
2. How’s the culture and hours in these direct lending shops in Asia?
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