Global Institutional Flows & Asian Private Credit
If 2025 was the year of public equity euphoria in markets like the Nikkei and KOSPI, 2026 will likely be the year of diversification into private yield. Institutional investors, particularly in North Asia (Korea and Japan), are increasingly finding themselves over-exposed to domestic public equities and US-denominated assets.
The "low hanging fruit" has been picked, and the portfolio concentration risk is now palpable. Even large pension funds and insurers across Korea and Japan are grappling with duration mismatches and negative convexity in their traditional fixed income portfolios.
We are observing a structural rotation.
The overwhelming flow of capital into US private credit has compressed spreads to a point where the risk-adjusted returns are losing their lustre. Investors are realising that the US dollar dominance may not sustain indefinitely, prompting a search for yield that is less correlated to the Federal Reserve’s immediate path.
Asian private credit, particularly floating-rate, senior-secured strategies, offers a rare combination of yield visibility, capital preservation, and structural seniority.
However, the opportunity in 2026 hence is not merely about finding yield; it is about accessing a diversified Pan-Asian credit strategy.
While significant interest remains in Southeast Asia, the market reality is nuanced.
Pure-play Southeast Asian funds often face challenges regarding deal depth and the consistency of risk-adjusted returns due to capital market constraints in markets like Indonesia and Vietnam. Consequently, a standalone allocation to Southeast Asia can struggle to deploy capital efficiently at scale.
The superior approach for the year is a calibrated portfolio mix.
We are seeing distinct value in a strategy that anchors on India’s market depth, which provides the necessary volume and yield, while opportunistically allocating to special situations in Southeast Asia and Australia.
This "Pan-Asian" approach allows investors to capture specific high-yield opportunities in markets like Singapore or Indonesia without being constrained by the region’s fragmented deal flow.
For North Asian institutions, the barrier to entry has often been structural familiarity rather than market appetite.
The focus for the year ahead is bridging this gap: offering USD-denominated structures that deliver the requisite yield targets while internally managing the local currency and regulatory complexities inherent to the region.
As US private credit markets become increasingly saturated, the flow of North Asian capital into this diversified Asian credit corridor is expected to accelerate, moving from a niche allocation to a core component of their global fixed income buckets.
However, access, not appetite, will define outcomes. The dispersion between top-quartile and median managers is widening sharply, making local sourcing, legal structuring capability, and workout expertise non-negotiable.
For the coming year, allocators will increasingly favour platform managers with on-the-ground origination and repeat borrower relationships over opportunistic capital deploying episodically into the region.
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