NextFin News - Asia's private credit market is staying positive even as credit stress begins to show in developed-market portfolios, and the reason is structural rather than cyclical. In an interview published on Monday, Sanket Sinha, managing director and global head of asset management at Lighthouse Canton, said the region's private credit market remains constructive - a stance that runs against a backdrop of climbing non-accrual rates and rising borrower stress elsewhere. The bet rests less on a temporary hunt for yield than on a durable financing gap: Asia-Pacific private credit is projected to grow from US$59 billion in 2024 to US$92 billion by 2027, in a region where 90% of borrowers have no private-equity sponsor and banks are still retreating from the middle market.
"If you're not taking market risk, you can't be speculating on capital gains," Sinha said in published remarks, framing Lighthouse Canton's private credit approach as income-focused rather than capital-gains driven. He added that the firm's private credit strategies target annual returns from 7.5% to 17-18%, "relatively independent of what's happening in the broader equity markets."
The Setup: Bullish in Singapore, Cracks Appearing in New York
The optimism from Singapore sits at an awkward angle to the data coming out of the United States and Europe. Private credit entered 2026 with familiar momentum - durable investor demand, an expanding opportunity set, and a growing role in institutional portfolios - but the first half of the year also brought a shift in sentiment. Among publicly traded business development companies, median non-accrual rates rose from 0% in 2022 to 0.33% in the first quarter of 2026, while the 75th percentile climbed from 0.61% to 1.37%. The 2021 and 2022 origination vintages - loans written during the most competitive underwriting window of the cycle - now carry non-accrual balances more than three times the level of the 2024 vintage.
Against that backdrop, a constructive read on Asia is a deliberate divergence. Lighthouse Canton, the Singapore-based wealth and asset manager Sinha has led since 2018, runs a multi-strategy platform spanning private credit, venture capital, life sciences, real estate and global macro. The firm's supply-chain-focused private credit strategy has run for six years, which Sinha described as offering monthly liquidity and having "never delivered a negative return" - a pitch built on short-duration, trade-linked cash flows rather than duration or multiple expansion.
The scale of the opportunity helps explain the conviction. Asia-Pacific private credit reached approximately US$260 billion in 2026, with Australia alone accounting for nearly 35% of the regional total. Australia's market has grown to roughly AUD224 billion in assets under management as of 2025, a compound annual growth rate of about 20%. But the faster growth is coming from the bottom of the size curve: India's private credit AUM reached an estimated US$17.8 billion in 2023, up from less than US$0.7 billion in 2010, and deployment in the first half of 2025 alone - US$9.0 billion across 79 deals - eclipsed the full-year totals of both 2023 and 2024.
Why Asia Is Different: A Structural Gap, Not a Cyclical Wave
The central question is whether Asia's private credit strength is a mean-reverting cyclical leg - a temporary yield chase that will fade when rates fall - or a structural shift that will not revert on its own. The evidence points to structural, for three reasons.
First, the financing gap is institutional, not transient. A report from the Alternative Investment Management Association's Alternative Credit Council, co-authored with Simmons & Simmons, EY and Broadridge, found that the region spans more than 50 jurisdictions and remains predominantly sponsorless, with 90% of transactions involving borrowers without private-equity backing. That is a fundamentally different market structure from the United States, where private credit largely intermediates sponsor-backed middle-market deals.
"Private credit funds have a comparative edge in providing bespoke, flexible financing for underbanked SMEs and mid-market borrowers, segments often underserved by traditional banks," said Ester Chow, a partner at Simmons & Simmons. "Their ability to move quickly and address complex or non-standard financing needs, which banks may find too costly or operationally challenging to serve, helps fill significant financing gaps in the region."
Second, the bank retreat is regulatory and durable. Banks pulled back from middle-market lending after the Global Financial Crisis under Dodd-Frank and Basel III capital requirements, and private credit filled the void. In India, bank credit growth decelerated to 11% year-on-year in fiscal 2025, even as private lenders stepped in through non-bank financial companies and direct lending. This is not a liquidity cycle that will flip when the Federal Reserve cuts; it is a re-sorting of who originates, underwrites and holds middle-market credit.
Third, the demand side is compounding. Wealth investors' share of Asia-Pacific private credit AUM is expected to rise to 28% by 2027, from 23% in 2020, driven by product innovation and digital access. Asian family offices now allocate nearly 45% of their portfolios to alternative assets, according to Campden Wealth data cited by Lighthouse Canton. On the deployment side, the region's infrastructure financing gap - estimated at US$26 trillion through 2030 - creates a long-duration pipeline for private credit in infrastructure debt, real estate debt and structured finance.
"While global credit markets face near-term strain, Asia's structural growth story endures," said Kher Sheng Lee, managing director for Asia-Pacific at AIMA. "Expanding economies, regulatory progress, and bank disintermediation are unlocking long-term opportunities for private credit to finance growth, innovation, and infrastructure across one of the world's most dynamic regions."
The Rate Channel: Why a Fed Cut Does Not Undo This Trade
The cyclical bear case leans heavily on one mechanism: if rates fall, the floating-rate yield that drew investors into private credit compresses, and the asset class loses its edge. That logic holds in the United States, where direct lending is predominantly floating-rate and duration is short. It does not translate cleanly to Asia, for two reasons.
First, the yield floor in Asia is set by credit spread and structural complexity, not by the policy rate. A US$26 trillion infrastructure gap, a 90% sponsorless borrower base, and more than 50 insolvency regimes mean lenders are paid for underwriting work and enforcement risk - premia that do not disappear when the Fed cuts 25 basis points. Second, the liability side is different: Asia's private credit is funded disproportionately by regional wealth and family-office capital seeking alternatives allocation, not by yield-hungry insurance general accounts rebalancing on rate moves. Wealth investors' share of AUM rising to 28% by 2027 makes demand stickier and less rate-elastic than the developed-market book.
The practical implication is that Asia's private credit cycle will be driven more by local credit conditions - deployment discipline, recovery rates, and enforcement outcomes - than by the direction of U.S. rates. That decoupling is exactly what lets a manager in Singapore stay constructive while a manager in New York turns defensive.
Where the Money Is Actually Going
The regional map is not uniform, and the composition matters as much as the headline growth. Australia is the mature anchor - sophisticated, institutionally dominated, with superannuation funds as the largest limited-partner base. India is the growth engine, with an estimated 40% AUM compound annual growth rate from a smaller base, driven by NBFC lending and sponsor-backed real estate credit. Southeast Asia is earlier-cycle: Vietnam and Thailand are expanding but still face structural hurdles, including capital controls that dictate transaction structures and, in Vietnam's case, an underdeveloped bankruptcy regime.
Strategy mix is also shifting. Special situations now account for more than one-third of Asia-Pacific private credit AUM, while direct lending forms the foundation of many portfolios. The move toward structured and asset-backed credit is a response to the same force driving the positivity: in a market where 90% of borrowers lack sponsor backing, lenders cannot rely on a private-equity parent to recapitalize a stressed company. Collateral, cash-flow control and structural seniority become the underwriting. That is why the conversation at this week's SuperReturn Asia Private Credit Summit in Singapore turned to senior secured credit and structured deals rather than plain-vanilla direct lending.
There is a peer comparison worth making. In the United States, the largest direct-lending platforms are backed by permanent capital - Apollo with Athene, KKR with Global Atlantic, Blackstone with its insurance engine - giving them a balance-sheet backstop through the cycle. Asia has far less of that architecture. The region's managers are funded by shorter-duration wealth capital, which is more flexible but less patient. That is a strength in deployment speed and a vulnerability in a drawn-out stress scenario. It is also why the barbell matters: Australian platforms with institutional governance on one side, high-growth Indian and Southeast Asian books on the other, and undifferentiated regional funds in a middle that will not survive dispersion.
The Counter-Thesis: Credit Quality Is the Flaw in the Bull Case
The strongest argument against the constructive read is simple: private credit is entering a more mature phase of the credit cycle, and the underwriting discipline of 2021 and 2022 is only now being tested. State Street Global Advisors' second-quarter 2026 credit outlook warns that rising defaults among smaller, highly leveraged, sub-investment-grade borrowers are increasingly likely if elevated interest rates persist. The firm judges the risks "material but not systemic," with losses likely to be absorbed by private capital rather than transmitted to regulated banks - but "not systemic" is not the same as "absent."
The stress math is concrete. UBS has outlined a scenario assuming private credit default rates of 13%; applied to one major bank's roughly £20 billion of aggregate exposure, that implies losses of about £2.6 billion - slightly more than a quarter of earnings. In Asia, the risk is compounded by fragmentation: more than 50 jurisdictions means more than 50 different insolvency regimes, and a lender's ability to realize collateral in Vietnam or Thailand is not the same as in Sydney or Singapore.
There is also a complacency signal worth weighing. PwC's 2026 Private Credit Survey found that 55% of respondents are not concerned, or only slightly concerned, about an increase in defaults over the next one to two years - but comfort with default risk is itself a late-cycle tell. When lenders stop worrying about underwriting, the next vintage tends to be the one that disappoints.
The bull answer is that Asia's 90% sponsorless, SME-heavy market was never priced like the U.S. direct-lending book. Loans were shorter-duration, floating-rate, and often asset-backed from the start - precisely because there was no sponsor backstop to rely on. That structural conservatism means the region's non-accrual trajectory need not mirror the developed-market climb from 0% to 0.33% median. But that is an argument from structure, not from data - and the data has not yet had a full cycle to speak.
The Second-Order Trade: Growth Will Come Through Banks, Not Past Them
The implication most investors are not pricing is that private credit's growth in Asia will not come at the expense of banks - it will come through them. The AIMA report found that the relationship between banks and private credit is "increasingly collaborative," with joint underwriting, shared due diligence, distribution partnerships and secondary-market mechanisms combining banks' client relationships and local knowledge with private credit's flexible capital.
That changes the risk distribution. If private credit originates the first-loss tranche while banks retain or distribute the senior pieces, the asset class becomes the shock absorber for the regional credit cycle - which is good for bank stability and fee income, but means private credit investors are being paid to stand first in line when borrowers fail. The yield premium - 7.5% to 17-18% in strategies like Lighthouse Canton's - is, in part, compensation for that position in the capital structure. It is not free money; it is the price of being first in line.
The second-order consequence for allocators is a barbell: on one side, mature Australian platforms with institutional governance and deep collateral markets; on the other, high-growth Indian and Southeast Asian books where underwriting speed and local enforcement matter more than pricing models. The middle - undifferentiated regional direct-lending funds charging private-equity-style fees for bank-like risk - is where the dispersion will hurt.
What To Watch: The Signal That Would Break the Thesis
The constructive view on Asia private credit is a structural call, and structural calls die slowly - then quickly. The falsifying signal is quantifiable: if regional non-accrual rates breach roughly 2% for two consecutive quarters, or if Asia-Pacific private credit net fundraising turns negative for four straight quarters, the "structural gap" narrative has to be downgraded to a cyclical one. A third watch item is enforcement: a cluster of failed collateral realizations in Southeast Asian jurisdictions would prove that the legal infrastructure cannot support the collateral-heavy underwriting the strategy requires.
By time horizon: in the short term, sentiment will track developed-market credit headlines and rate expectations. Over the medium term, fundamentals - deployment, recovery rates, and the seasoning of the 2024-2026 vintages - will dominate. Over the long term, the structural drivers - bank disintermediation, a 90% sponsorless borrower base, and a US$26 trillion infrastructure gap - are the variables that matter, and none of them is reverting.
The base case is continued growth toward the US$92 billion 2027 mark, led by India and Australia, with dispersion widening between disciplined and undisciplined managers. The upside case is that collaborative bank-private credit structures unlock institutional scale faster than expected, pulling the region past the consensus trajectory. The downside case is that a rate-higher-for-longer environment exposes the 2021-2022 vintage discipline problem in Asia's own book, and fragmentation turns isolated defaults into a regional repricing.
The bottom line: Asia's private credit market is not positive because it is cheap, and not because the cycle is kind. It is positive because the financing gap that created it - banks out, sponsors scarce, SMEs underbanked - is still widening. That is a structural tailwind, and structural tailwinds do not reverse on a quarterly earnings miss. But the first real test of Asia's underwriting discipline is still ahead, and the 2% non-accrual line is where the story either hardens or breaks.
Explore more exclusive insights at nextfin.ai.
