Private credit caution redirects Asian LP capital

Asian investors are becoming more selective about private credit following concerns around semi-liquid products. “We are seeing that interest and flows into private credit from wealth management have slowed given recent headlines around semi-liquid offerings, although we continue to see solid interest from institutional investors,” Nathan Pensabene, partner at LGT Capital Partners, told AsianInvestor.

In response to these market headwinds, some investors delayed new direct-lending commitments following concerns around private credit in the first half of 2026, according to Amanda Chen, principal at HarbourVest Partners. As a result, part of that demand has moved into infrastructure and secondaries.

However, this shift does not mean a broad retreat from private credit. Instead, investors are putting greater scrutiny on collateral, sponsors and the protections built into individual transactions.

This heightened selectivity forms part of a broader recalibration across private markets. Higher interest rates and weaker private equity distributions are also supporting demand for strategies that offer income and more predictable cash flows, according to Andrew Bellis, global head of private credit at Partners Group.

Kelvin Lee, co-founder and chief executive at Alta Alternative Investments, echoed this view, noting: “The principal drivers are income, liquidity and greater certainty around the timing of capital returns."

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PRIVATE CREDIT FACES A HIGHER BAR 

Asian investors still want private credit exposure, but managers must provide greater confidence about how returns are generated and what happens if conditions deteriorate.

To that end, Bellis said insurers, pension funds and high-net-worth investors are placing more emphasis on income and capital preservation after several years of market volatility.

“The focus is increasingly on achieving attractive risk-adjusted returns rather than maximising upside at the expense of downside protection,” he said.

This places more pressure on managers to demonstrate the quality of the underlying loans rather than relying on headline yields.

In general, investors are taking a more selective approach to individual strategies and managers.

According to Chen, there is no uniform reallocation across Asian LPs because investors have different portfolio needs.

The shift is therefore less about accepting lower returns than demanding stronger protection and greater visibility over when capital will be repaid. “Income and capital preservation have become more important, but not at the expense of returns,” Lee said.

SECONDARIES BECOME AN ALLOCATION TOOL

Secondaries are gaining as investors seek more control over liquidity and portfolio construction. LPs are using the market more actively to adjust existing allocations, rather than turning to it only when they need to sell assets.

“We are seeing secondaries used more actively, not just when investors need liquidity, but as part of how they manage and rebalance their portfolios,” Chen said.

Private-equity secondaries continue to attract interest across GP-led transactions and LP portfolios, Pensabene said, noting that the growth of both segments is expanding the potential deal pipeline. “Against this backdrop, 2026 could be a record year for deal volume,” he added.

At the same time, infrastructure is attracting wealth-management demand as new semi-liquid offerings provide access to the asset class, with Pensabene highlighting interest in data centres and infrastructure secondaries.

The move towards secondaries is being reinforced by the slow return of capital from existing private-market portfolios. HarbourVest’s 2026 Mid-Year Private Markets Outlook showed that exit activity had improved, but distributions as a share of net asset value remained well below historical averages and concentrated among a relatively small group of high-quality assets -- a dynamic that is changing how LPs judge performance.

“What has changed is how investors think about returns, with more focus not only on IRR or multiple, but also on Distributed to Paid-In Capital (DPI), duration and the path to liquidity,” Chen said.

Looking across investor segments, yield remains an important part of the return from private credit and infrastructure, Pensabene said.

Private-equity investors, by contrast, remain focused on total return. For managers, the next competitive advantage may therefore come from demonstrating not only the return a strategy can generate, but how that return reaches investors.

“Ultimately, LPs are looking for strategies that can generate attractive long-term returns while giving them greater confidence around downside protection and when capital will come back,” Chen said.