Institutional investors globally are set to significantly increase their allocations to emerging markets (EMs) private credit over the next two years, with 42% planning such a move, according to a recent survey by Gemcorp. This anticipated shift could channel a substantial inflow of much-needed investment into developing countries. Gemcorp is an emerging markets asset manager that specialises in facilitating and managing investments within developing economies. The global private credit market, approximately $3.5 trillion, currently sees only a modest portion reaching emerging markets, underscoring the potential for growth.
Despite this future intent, current allocations to EM private credit remain markedly low. The Gemcorp survey of 250 investment decision-makers across 22 countries found that fewer than 6% of respondents’ private credit portfolios were allocated to emerging markets, with 40% holding no current EM allocation whatsoever. A major impediment identified is risk perception, as over 70% expect higher risk in EM private credit compared to developed markets. Felipe Berliner, Gemcorp’s co-founder, noted this view often changes with greater familiarity, adding that few investors fully grasp the structural protections available.
Driving this increased interest are concerns over the sustainability of developed world private credit, where high-profile defaults have raised alarms. Over 90% of those polled viewed rising defaults as a challenge, with just over half rating developed world default rates as a ‘significant’ concern. This environment has already spurred growth, with investors committing a record $22.3 billion to emerging markets private credit last year. Gemcorp’s findings also revealed notable regional variations; over 90% of Middle Eastern investors are already allocating to EM private credit, significantly more than the 42% among North American respondents. The survey encompassed diverse investors, including pension funds, insurers, and family offices.
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