Asia plays part in $129t global credit market pool

This pool is financing beyond traditional banks who are constrained in lending, particularly at longer-tenors.

Asia’s financial hubs of Singapore, Hong Kong, Tokyo, and beyond are increasingly participating in this latest stage of global credit market innovation that casts pension funds and insurance companies more towards centre stage.  

Anyone with a passing interest in financial markets will be familiar with the rise of private markets. Unlike standardised bank lending or public markets, they offer more diverse, flexible and bespoke financing, deployed across fund structures, and securitisation techniques to give global investors different access points and returns potentially less correlated to public markets.

Fitch’s Insurance ratings team views private credit exposure amongst major rated APAC insurers as manageable. Allocations generally remained below 5% of total assets or broadly within 10% of equity capital, including contractual service margin, in 2025, despite rising over the past two to three years. They believe private credit is becoming a more established part of insurers’ investment strategies without changing portfolio risk profiles significantly.

Whilst private credit direct lending captures most headlines, innovative credit products benefiting from asset-backed structural protection continue to develop. Before looking at these further, it is important to understand what is driving growth.

Driving forces
Firstly, the mobilisation of an approximate US$100t ($129t) pool of investor capital hunting for greater yield within the investment grade space: US$45t ($58t) from insurance, US$40t ($51t) from pension funds, and an estimated US$15t ($19t) from sovereign wealth funds.

In short, this $129t pool is energising market-based-finance — that is, financing beyond the traditional banks, who these days are more regulatory-constrained in their ability to lend, particularly at longer-tenors.

Secondly, securitisation, and risk-transfer techniques are accelerating.

Structured finance can tailor assets with cash flows that match insurers’ liability profiles, helping optimise risk and capital. Asset-backed structures can mitigate losses given default. Meanwhile, regulated banks and insurers are using risk-transfer tools such as significant risk transfers (SRTs) and insurance-linked securities (ILS) to redistribute risk to institutional investors and reduce capital requirements.

Thirdly, digital and energy infrastructure financing needs are vast.

Large deal sizes in these segments have stretched traditional bank financing and public debt issuance, prompting demand for more diversified funding. This spans direct corporate financing and project finance for construction, and securitisation for completed assets. Predictable or fixed cash flows and creditworthy tenants, such as data-centre hyperscalers, make these assets suitable for securitisation and for tailoring credit risk to different investor appetites.

Innovation spotlight
Innovation is taking shape across product areas as institutional investors seek scale, yield, transparency, and capital efficiency. Visible trends include fund finance, private credit securitisation, insurer-focused structures, ILS, and digital asset-enabled capital markets activity.

Fund finance continues to expand as private-market managers use Net Asset Value or Holdco financing, backed by the net asset value and cash flow of funds or entities investing in limited partnership interests, and subscription or “capital call” facilities, where funds borrow against uncalled investor commitments.

These structures can offer diversified exposure to fund-level cash flows, but require close attention to leverage, valuation and liquidity assumptions.

Some private credit-originated structures use assets that are complex to securitise, or whose confidential details cannot be readily disclosed, limiting their use in public structured finance transactions. Private markets also increasingly finance assets, such as infrastructure, that take longer to generate operating cash flows. Securitising more complex assets often increases structuring complexity.

Structuring techniques, risk wrappers, and rated note feeders are increasingly used to make debt suitable for insurers by creating investment-grade rated notes with fixed cash flow schedules. These can support liability-driven strategies and, under frameworks such as the US NAIC and global ICS regimes, may help reduce asset investment capital requirements.

Novel ILS structures transfer cyber and operational risk from digital infrastructure to capital markets, expanding insurance risk transfer beyond natural catastrophe and credit risks. These can include parametric triggers based on measurable events such as power-outage hours, cooling failure or shutdown duration.

After years of regulatory and legal fragmentation, digital assets are gaining more consistent recognition within the financial system, such as institutional adoption of distributed ledger technology (DLT), including blockchain, growth for fixed income and fund instruments.

Digital bonds can enable near-instant issuance, settlement and clearing, with greater transparency and potentially lower counterparty or settlement risk. Stablecoins, tokenised deposits and money-market fund use cases can expand institutional product offerings and improve fees, yields and efficiency. Greater regulatory clarity in major jurisdictions should accelerate institutional acceptance.

Risk backdrop
Despite the pace and scale of innovation, it is vital to consider the risk backdrop: Refinancing walls, technological obsolescence, counterparty structure changes, FX risk, and the layering and interdependence of credit products.

Market volatility from geopolitical events, such as the Iran conflict, can also drive “risk-off” swings in investor flows to more esoteric asset classes.

In conclusion, this latest generation of credit market innovation places pension funds and insurance companies closer to centre stage. Rather than banks or public markets, they are playing a larger role in credit intermediation. By matching longer-duration assets with longer-duration funding, these institutional investors serve as patient end-capital owners.

As with any evolving market, transparency, credibility, and commonly understood risk benchmarks remain vital to help investors make better-informed decisions.