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Asset owners consider distressed investments in alternative assets

State Street Survey: Asia Pacific Asset Owners Turning to Private Debt and Secondaries Amid Elevated Borrowing Costs

Asia Pacific asset owners are turning to private debt and secondaries as borrowing costs rise, according to a survey by State Street. The survey found that 65% of respondents in the region see elevated borrowing costs as a key challenge, compared to 53% in Europe and 56% in North America.

Eric Chng, global head of hedge commercialisation and head of alternative solutions for APAC and Middle East at State Street, explained that private credit is filling funding gaps and supporting private equity valuations. This trend is driven by the flexibility and longer-term view of debt portfolios offered by private credit compared to traditional bank financing.

With borrowing costs on the rise, companies engaged in leveraged buyouts and highly leveraged businesses may face challenges as they refinance debt and focus on strengthening their balance sheets. However, Chng noted that companies with pricing power to adjust for inflation are better positioned to access funding and maintain valuations.

The survey also revealed that Asia Pacific investors are increasingly interested in private debt, with 78% planning to increase allocations to the asset class over the next one to two years. This trend reflects a broader shift towards alternative assets as liquidity management becomes a key focus for asset owners.

Despite the challenges posed by elevated borrowing costs, private equity remains a favored asset class among investors. However, distributions have been falling as valuations decline, leading investors to focus on track records and specialist areas for deployment.

Overall, the survey highlights the evolving investment landscape in Asia Pacific, with asset owners adapting to changing market conditions and seeking opportunities in alternative assets to navigate the impact of rising borrowing costs.

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