Hong Kong’s talent base lends expertise to rapidly growing Asian private credit market, APLMA CEO says

Hong Kong’s sophisticated investor base is bringing lending expertise to Asia’s private credit market, giving further impetus to the rapidly growing asset class, according to the new head of the regional industry body, the Asia-Pacific Loan Market Association.

The region’s assets under management in private credit have increased more than 3.5 times in the last decade, to US$81.3 billion in 2022, according to data provider Preqin, but still account for only 5.5 per cent of the global tally, indicating the growth potential.

The strong growth pace has attracted private-equity firms, asset managers, family offices, and banks, many of whom are members of the APLMA, an industry group that provides template documents and guidance notes for the loan market.

“In Hong Kong, we are blessed with quality and sophisticated market participants – whether they be banks, nonbank financial institutions [NBFIs], or legal advisers – which contribute to an increasingly vibrant private credit market,” James Hogan, CEO of the association, said in an interview with the Post. “Many other regional markets will be keen to follow some of the trends in Hong Kong and Greater China.”

Hogan, a 32-year HSBC veteran who joined the APLMA at the start of this year, said private credit funds and banks collaborate with and complement each other in Asia, where banks have long dominated lending.

“Banks have traditionally been the biggest providers of working capital and finance liquidity,” said Hogan. “But banks cannot do everything. Having an alternative provider of credit is very healthy.”

Association bullish on loan market

The association’s NBFI members, many of whom are engaged in the private credit market, have doubled to more than 60 compared with 2020. They are the fastest-growing category in the 400-plus member group, according to Hogan.

Hong Kong-based real estate services firm JLL which is an NBFI member, hired Robert Lay last year to fill its newly created role of Greater China debt advisory lead position.

Hong Kong-based Lay said the city, as one of the world’s key international capital markets, possesses the necessary sophistication and depth to cater to the booming private credit market. “Its structured finance and lending expertise, combined with an open and investor-friendly business environment that fosters growth, make it an ideal hub for private credit activities.”

JLL works with diverse clients in debt advisory, including institutional investors, listed funds, financial institutions, local companies, and high-net-worth families across the Asia-Pacific region. “With our deep domestic knowledge as well as our diverse global connectivity, we add a lot of value to the clients and lenders, especially in the current property market situation in Hong Kong,” said Lay, who has 17 years of experience in banking, with his last stint at Bank of China (New Zealand).

“In my opinion, JLL’s membership in the APLMA has proven to be very beneficial,” Lay said. “This membership has facilitated not only local but also global connections, providing us with valuable opportunities to participate in events that address thought-provoking and timely topics relevant to key players in the financial industry.”

Another role the APLMA can play in the opaque private credit market is providing standardisation in deal documentation.

“Most NBFIs are not yet required to use the APLMA standard documentation,” said Hogan. “But some envisage that larger deals will be syndicated in future, and such standardisation will help de-risk the environment for lenders and also enable a more efficient market with consistent standards on terms and conditions.”

“Standardisation of terms and conditions is a clear theme in the private credit markets in the US and Europe to provide efficiency and transparency. We anticipate the same discussions taking place in Asia as the market matures,” he added.

Market participants such as JLL’s Lay see private credit as an emerging asset class in the region, requiring greater awareness and borrower receptiveness to this financing option.

The APLMA is holding its annual Global Loan Market Summit in Hong Kong from February 20 to 21. The event will include a panel discussion on private credit, among other topics.