Asian Private Bankers Go on Blitz to Calm Private Credit Nerves

(Bloomberg) — Private bankers in Asia are scrambling to contain client anxiety as repayment pressures fluctuate in the $1.8 trillion private loan market, even in a region seen as more insulated from the recent turmoil.

With investment funds’ transition mechanisms suddenly coming into focus, private bankers in Hong Kong and Singapore are fielding urgent calls from high-net-worth clients seeking clarity or unwinding positions on private loan products they hold, according to people familiar with the matter. Regulators in Asia are also stepping up scrutiny of the asset class, aiming to protect less sophisticated retail investors who tend to be more sensitive than their institutional counterparts and easily shaken by negative headlines.

“Many asset investors had never experienced a redemption queue before this cycle,” said Kher Sheng Lee, Asia Pacific co-chairman of the Alternative Investment Management Association. He said the rapid adoption of private credit products by individuals has made it imperative for fund managers, distributors and investors to close this knowledge gap, leaving behind their practical familiarity with how illiquid structures behave under stress.

Several high-profile implosions of companies financed by private lenders in the US and Europe have shaken investors’ confidence. Concerns about U.S. private credit funds’ exposure to the software sector (now under pressure from rapid developments in artificial intelligence) have led BlackRock Inc., Blackstone Inc. and Blue Owl Capital Inc. It led to withdrawals from vehicles operated by . Morgan Stanley and Cliffwater LLC limited redemptions of their multibillion-dollar funds after clients tried to withdraw much more than allowed. JPMorgan Chase & Co. it also restricted some lending to private loan funds after reducing the value of some software-related loans in their portfolios.

In Asia, Blue Owl, Blackstone and KKR & Co. asset managers including hosted in-person events with private bankers in Hong Kong and Singapore; It hosts events ranging from casual drinks to formal lunches to calm investors’ nerves, said the sources, who asked not to be identified discussing private matters. Blackstone has also held Zoom calls with select retail clients to reassure them that its exposure to stressed software assets is limited compared to peers, one of the sources said, adding that the firm has sufficient cash to meet redemption demands.

Sources familiar said the Hong Kong Monetary Authority has contacted private banks to assess the private loan funds they have distributed and the extent of these risks. The Australian Securities and Investments Commission has increased its oversight of private markets since last year.

A representative for Blue Owl said the firm is in regular contact with its distribution partners and customers around the world as part of its normal course of business. The company added that Asia remains a key growth market, with strong demand from both institutional and private asset investors across its global platform.

“Education and ongoing relationships with financial advisors and investors are central to our approach to private wealth,” said Jacqueline Zhuang, head of global wealth solutions for KKR, Asia Pacific, ex-Japan. He added that the firm will continue to support financial advisors and their clients as the asset class continues to grow.

A representative from the HKMA said the body does not comment on market rumours, while Blackstone declined to comment.

According to Endowus, an independent wealth and fund platform, most private loan products are only available to professional investors, defined as those with a portfolio worth at least HK$8 million ($1 million) in Hong Kong or accredited investors in Singapore with financial assets exceeding S$1 million ($781,050). Global funds generally distribute these products through private banks in Asia.

In recent years, global asset managers have raised billions of dollars for private credit funds through the wealth pipeline. Retail investors currently account for around $48.8 billion of the asset class in Asia Pacific, with that figure expected to rise to $74.8 billion by 2028, according to data provider Broadridge Financial Solutions.

For some in Asia, the latest tensions feel like deja vu. The write-off of Additional Tier 1 bonds during Credit Suisse’s bailout in 2023 and the collapse of Lehman Brothers mini-bonds in 2008 burned people in the region. The recent downturn in China’s real estate and technology sectors has forced them to react particularly quickly to signs of instability.

And this isn’t the first time Asia’s rich have rushed to use money despite withdrawal limits. In 2022, Blackstone capped payouts from its real estate fund amid popular demand, mostly from Asia. This phenomenon has made high-net-worth individuals, family offices, and advisors more cautious about tying up money in assets that are difficult to trade or value. However, trust was later rebuilt, with the University of California dedicating $4 billion to the fund.

Some bankers in Asia are now pointing to this as they try to reassure customers, sources familiar said. The idea behind limiting redemptions is to avoid a vicious cycle in which funds are forced to sell assets cheaply to cover withdrawals, hurting remaining investors and leading to further outflows, he said.

Wealth investors account for about 20% of U.S. permanent funds, open-ended investment vehicles with no fixed maturity, that had $500 billion in assets under management as of Sept. 30, according to MSCI Research. He added that approximately half of the assets of investors in these funds were allocated to private credit, indicating a structural change beyond a purely institutional basis.

Still, some banks and investment committees are being cautious by allowing customers to use the money early in case their demands reach the limit later, sources said. Moreover, not all private bank customers are stepping back from the asset class. They added that some are looking to switch to vehicles with less exposure to U.S. markets and software companies.

More stories like this available Bloomberg.com