This report does not constitute a rating action.

Key Takeaways

• Private credit's impact on Asia-Pacific securitization is more pronounced in markets with greater issuer diversity.
• Private credit's expansion is providing new sources of funding to securitization issuers in markets such as Australia, enabling greater scale and product variety, in our view.
• Continued growth in private credit and its spillover to Asia-Pacific securitization markets will likely influence new issuance trends, asset types and the risk profiles of underlying loan portfolios.

Growth in private credit markets continues apace as the sector's footprint expands into new asset classes and sectors. Across Asia-Pacific securitization markets, the growth of private credit is helping to onboard new lenders and fund the growth plans of established players.

Private credit's inroads bring risks and opportunities to the Asia-Pacific market. As an important adjunct to securitization, its continued expansion will help to grow new asset classes and structures in the region, according to S&P Global Ratings.

Private credit's footprint is expanding across developed markets in Asia-Pacific. While comprising only a small part of the global total (see chart 1) it is fast becoming an established source of credit and complement to issuance in public markets.

Across China, Japan and Australia, the major securitization markets in Asia-Pacific, private credit's trajectory is diverging. Australia and Japan's large pool of investment savings is a strong drawcard for many global asset managers, keen to capitalize on vast reserves of deployable capital in search of higher returns. This contrasts with China, where greater regulation of private credit and the lack of foreign participants constrain its expansion. The spillover of private credit into securitization across the regions varies, with its presence more pronounced in markets with greater issuer diversity and nonbank issuers.

Australia's large compulsory superannuation sector has been an important source of capital for securitization issuers. Australia's A$3.9 trillion superannuation sector has been a long-term source of funding for securitization warehouse lines, private placements, and public issuance, and is a major allocator to private credit in Australia. Many nonbank securitization issuers, which make up more than half of total securitization issuance, utilize private credit funding in various forms including mezzanine financing, whole-of-loan financing and loan settlement facilities. Some nonbank originators also receive equity support from global or domestic alternative asset managers.

In addition to superannuation funds, capital commitments from private wealth investors (including family offices and wealth managers) are also increasing. This trend is leading to the creation of more open-ended private credit funds that allow the continuous entry and exit of investors to and from Australia.

Investor demand for higher returns is broadening the appeal of private credit in Japan. Japan's shift from deflation to inflation is attracting more global asset managers. The number of Japanese institutional investors allocating funds to private credit tripled between 2017 and 2023, according to private market data provider Preqin.

Despite this momentum, however, private credit's influence on Japanese securitization markets is less pronounced than in Australia. Larger originators with more funding options lead the market in Japan, including auto-finance captives and Japan Housing Finance Agency, a government-affiliated mortgage lender. This contrasts with China's and Australia's securitization markets, which have a broader range of issuers.

China's private credit market is a more domestic affair. The private debt market in China has significant structural and governance differences with the U.S. and Europe, and fewer foreign participants. Unlike elsewhere, China's private debt market is highly regulated, with banks and government entities the key players. Apart from a few exceptions, there is a distinct lack of alternative investment fund vehicles and direct lending.

While China is the region's largest securitization market, its private credit sector is contracting. We estimate the China market has shrunk to Chinese renminbi 21 trillion as of Dec. 31, 2024, nearly half its size since 2017. This comes off the back of new regulations, increased competition from local bond markets, and compressed margins (see "Credit FAQ: The Contraction Of China's Private Credit Market," published on RatingsDirect on April 15, 2025).

Global and local factors are driving an expansion in private credit. Increasing bank regulation globally is driving private credit growth. Its advantages over traditional lending include faster execution, greater flexibility on terms and structures, and investors are drawn to the potential for higher risk-adjusted returns.

Local factors have also influenced private credit's expansion in some Asia-Pacific securitization markets. In Australia, for example, some securitization issuers are approaching capacity limits with traditional funders in their standard public securitization programs. This necessitates finding new funding sources.

As private credit evolves, lending platforms are becoming more vertically integrated. Alternative-asset managers, a common type of private credit lender, are becoming more vertically integrated, managing platforms that encompass origination and distribution. This allows private credit funds to originate loans directly through their own lending platforms and customize lending. With arms for origination, and distribution channels that place the new issues within related funds and insurance portfolios, some alternative-asset managers today resemble a vertically integrated credit shop (see "The Opportunity Of Asset-Based Finance Draws In Private Credit," published Nov. 20, 2024.) Such vertical integration is already under way in Australia, where several nonbank securitization lenders are backed or owned by global and domestic alternative-asset managers.

Private credit's scale and sophistication is also expanding beyond direct lending to corporates; it now encompasses exposure to securitization, fund finance and real assets (see chart 2).

Chart 2

Diversity of funding sources including private credit enhances funding resilience for issuers. This is especially the case for nonbank securitization issuers, which historically have been reliant on banks to fund their warehouse credit facilities, a precursor to public market issuance. Increased funding options for securitization issuers provide new capital to grow existing programs and fund new asset classes. It can also increase price efficiency through competition.

It also gives new securitization originators time to build an issuance record before debuting on public markets, where greater reporting and disclosure is required. A private funding strategy may also be more desirable for issuers with niche products when they want to protect their intellectual property and limit disclosure.

Higher inflows of private credit into securitization may also alter portfolios' credit risk profiles . Greater inflows of private credit to securitization issuers could skew loan portfolios toward higher-risk assets to satisfy end investors' return objectives. In markets such as Australia this could lead to more specialist loan products and low-documentation loans in residential mortgage-backed securities (RMBS) portfolios.

With more private credit, securitization issuers are using a greater array of alternative funding strategies, including whole-of-loan sales and forward flow agreements. In a whole-of-loan sale, a lender sells the entire portfolio of loans to a single investor. In forward flow agreements, the beneficial and economic interest in a loan is transferred to a funder in return for liquidity, without dilution of equity for the borrower. These types of transactions can help with liquidity. We expect the financing type to become more common with the expansion of private credit, particularly in Australia.

New asset classes are emerging with greater funding diversity. In recent years, more new asset classes have proliferated across Asia-Pacific securitization markets. Issuance has expanded beyond the traditional asset classes of RMBS and auto asset-backed securities (ABS) to encompass a broader range of consumer assets. These include transactions backed by equipment receivables, small-medium enterprise (SME) loans, small-ticket commercial loans, buy-now-pay-later loans, and personal loans to finance solar panels.

The new asset types have led to record issuance in some securitization markets in the region (see charts 3a-3c). Factors underpinning this growth include improved economic fundamentals bolstering consumer demand, increased investor interest, and more funding options for issuers.

Even China's slowing economic growth is not dampening demand for consumer ABS. Despite the economic uncertainty in China, there is increasing interest in nonstandard securitization including consumer loans and trust loans that are mostly originated through a loan facilitator's platform based on pre-agreed asset-eligibility criteria. This type of securitization is privately placed, and constructed as an asset management trust.

Japanese securitization may also see more collateralized loan obligation (CLO) transactions in the future. Leveraged buyout (LBO) financing is on the rise in Japan,. driven by corporate restructuring for large companies and business succession needs for small to midsize companies. Japanese major banks take and hold most LBO loans, but there is growing interest in widening the investor pool to include private credit and CLOs to create more investor diversity.

Beyond the major securitization markets, there is growing interest in using securitization to fund a wide range of asset types in emerging markets such as Malaysia, India, Indonesia and Thailand. Private credit typically favors markets with stronger legal frameworks given that asset recoveries in the event of default are primarily realized through collateral disposal. We therefore expect to see more domestic and offshore public market issuance from emerging-market securitization issuers in the region.

Macro trends are also spawning new asset classes. Digital transformation and shifting demographics are also driving shifts in securitization markets in the region. Aging populations are underpinning increased interest in reverse mortgage securitizations, as older borrowers seek to unlock equity in their homes to access finance during retirement. Asia-Pacific is also experiencing a surge of private capital into the data center sector as growth in cloud computing and AI draw more investment into digital infrastructure. We expect to see more of these types of transactions in the region being funded using securitization (see Related Criteria).

Private credit is a key funding source for data center transactions, providing flexible capital solutions that support the asset classes acceleration and advancement (see "Private Markets Monthly, May 2025: Assessing And Financing The Data Centers Of Tomorrow Amid Today's Market Disruption," published May 30, 2025).

Private credit funds are increasingly incorporating securitization technology in their capital structures. Globally, we are increasingly seeing private credit fund proposals that include the use of credit tranches in some of their capital structures, which makes them more comparable to CLOs. While similar assets can be funded through middle-market CLOs, alternative investment funds, or business development companies, it is the nature of the financing structure that will determine our analytical approach (see "ABS Frontiers: The Blurring Of Private Credit Funds And CLOs," published Jan. 30, 2024.)

CLO transactions are structured to mitigate asset-liability mismatch by ensuring that repayments of principal and interest on the underlying investment portfolio will be sufficient to meet contractual payment obligations on the rated notes. In contrast, our rating analysis of private credit funds places a greater reliance on the fund manager's ability and record of managing risks relating to liquidity, operations, funding and credit and counterparties.

Structured finance mitigates these risks through structuring and credit enhancement, and by placing less reliance on the manager's performance. This often results in higher ratings. But it may come at the expense of less flexibility for the collateral or fund manager.

Table 1

For hybrid structures that possess a combination of private credit fund and CLO characteristics, we may determine the applicable analytical approach on a case-by-case basis depending on the structure's risks and mitigants.

Private credit is reaching beyond institutional investors. Across the region, private credit's reach is extending beyond institutional investors to retail investors as the sources of capital seeking private credit exposure continues to diversify. The launch of private credit retail funds in Japan and Australia exemplifies these trends. Singapore is also looking to open private market investment to retail investors.

Private credit may offer higher yields due to the illiquidity of the assets. If retail investors are willing to make this trade-off, the potential investor base may accelerate, due, to demographic shifts in many advanced Asia-Pacific economies as more people approach retirement and look to generate income.

Private credit presents opportunities for underserved borrowers. Only a small proportion of consumer finance lending in the region is securitized, given the greater predominance of bank financing. The expansion of funding from private credit to more specialist and smaller lenders will help to finance underserved borrower segments, such as SMEs (see chart 4).

Potential regulatory changes for banks, including Basel III rules, may present further opportunities for alternative funding.

That being said, private credit's rapid expansion poses risks. The wide uptake and innovation in private credit markets can lead to new risks, particularly if new channels of interconnectedness reveal vulnerabilities during a market shock. With new instruments, structures, and investing vehicles, private credit is evolving in new, and complex ways. Without a secondary market, these assets are typically illiquid, which poses a challenge to investors that are looking to exit a position. Greater disclosure and reporting, which are less common in private credit, can provide early warnings of deterioration in underlying portfolios.

Transparency is more situational in private credit. Whether public or private, structuring, managing, and investing in ABS is challenging. One benefit of the traditional market for ABS is transparency. Whereas systemic transparency is built into public markets, transparency is more situational in the private markets.

The expansion of private credit will draw more regulatory scrutiny. Unsurprisingly, the rapid growth of private credit is attracting more regulatory scrutiny as concerns about its illiquidity, complexity, and interconnectedness garner attention. Increased retail participation in private credit has also been a focus of regulators in both Singapore and Australia, where regulatory consultation is underway. We view improved transparency as vital for long-term, enduring investor confidence as the industry continues to grow strongly and evolve rapidly.

Related Criteria

• Alternative Investment Funds Methodology, Aug. 30, 2024
• Data Center Securitizations: Global Methodology And Assumptions, Jun. 13, 2024
• Financial Institutions Rating Methodology, Dec. 9, 2021
• Global Methodology And Assumptions For CLOs And Corporate CDOs, June 21, 2019

Related Research

• Private Markets Monthly, May 2025: Assessing And Financing The Data Centers Of Tomorrow Amid Today's Market Disruption, May 30, 2025
• Structured Finance Brief: Why China Is Warming To Nonstandard Asset Securitization, Apr. 22, 2025
• Credit FAQ: The Contraction Of China's Private Credit Market, Apr. 2025
• ABS Frontiers: Asset-Based Finance Funds Are In Vogue, Feb. 24, 2025
• The Opportunity Of Asset-Based Finance Draws In Private Credit, Nov. 20, 2024
• Credit FAQ: How We Rate Common Private Credit Investment Vehicles, Sept. 4, 2024.
• ABS Frontiers: The Blurring Of Private Credit Funds And CLOs, Jan. 30, 2024

Primary Contact:	Erin Kitson, Melbourne 61-3-9631-2166; erin.kitson@spglobal.com
Secondary Contacts:	Kate J Thomson, Melbourne 61-3-9631-2104; kate.thomson@spglobal.com
	Jerry Fang, Hong Kong 852-2533-3518; jerry.fang@spglobal.com
	Yuji Hashimoto, Tokyo 81-3-4572-6179; yuji.hashimoto@spglobal.com