Private credit is on course for biggest year in emerging markets

Emerging markets are on a tear this year and that is drawing some of the hottest names in finance — lenders from the world of private credit.

Funding by the likes of Blackstone Inc. and Apollo Global Management Inc. is putting EM deals from private lenders on course for the biggest year on record. The first half of 2025 saw $11.7 billion (€10 billion) deployed, already nearly reaching 2024’s full-year total, according to the Global Private Capital Association.

This year has included the biggest private deals to date in India, Southeast Asia and Eastern Europe, adding to strong growth in the Gulf. Heavyweights like KKR & Co and Ares Management are being drawn by a revival of interest in emerging economies as investors seek alternatives to US assets.

“We see more of the big global players participating with larger packages,” said Jeff Schlapinski, the managing director of research at the Global Private Capital Association in New York. “It’s still at a relatively early phase compared to the US, where private credit has expanded so rapidly over the last decade, but in general we do see it growing.”

Some private credit lenders did not stray far beyond Europe and North America until this year, deeming EM as too risky and in need of too much institutional expertise to master. The record deal sizes are starting to change this perception and analysts now expect bigger volumes.

Emerging markets account for half of global GDP but less than 10% of the $1.7 trillion (€1.5 trillion) private credit market, according to a survey of institutional investors. Greater inflows of private money will provide an alternative funding source that could help fuel corporate expansion and infrastructure in these countries.

For investors in private credit, spreading into EM provides portfolio diversification and potentially higher returns. Their confidence is being helped by a surge in inflows into public EM markets, where stocks have surged 23% this year and hard-currency bonds have returned nearly 9%.

“It’s really the great fundamentals of emerging markets that we’re finally seeing investors pay attention, looking to use emerging markets private credit as a tool to diversify their private credit allocations,” said Pranav Khamar, a partner at Gemcorp Capital.

While this demand is now extending into private capital, deals are still typically small, with the majority in the tens of millions of dollars. Volumes are only a fraction of the total debt of most corporates, dwarfed by public debt market sales and bank lending.

EM companies have raised $299 billion in the public debt market this year in US dollars alone, the most since 2021, according to data compiled by Bloomberg.

For EM firms to turn to private lenders, the advantages are the same as those touted by the industry in the US and Europe: they can be more agile on deals and maintain higher degrees of confidentiality. The downside is the money can be costlier than publicly-syndicated debt.

“Private credit is about 2% to 3% of our total debt book,” said Jugeshinder Singh, chief financial officer at Indian conglomerate Adani Group, adding it was occasionally used for shorter-term working capital given the cost. “Private credit makes sense if there is a huge and significant gap between your senior debt cost of capital and the equity cost of capital.”

Many of the biggest deals were in India, where Prime Minister Narendra Modi’s infrastructure push is increasing the funding demands for everything from solar power to roads. Investors in real estate and construction conglomerate Shapoorji Pallonji Group’s $3.4 billion financing included Ares, Cerberus Capital Management, Davidson Kempner Capital Management and Farallon Capital Management. Meanwhile, Apollo provided $750 million for Mumbai’s airport.

Local funds

Central and eastern European markets also saw their largest credit deal as Superbet, a Romanian sports betting and gaming platform, secured €1.3 billion from Blackstone and HPS Investment Partners. And Southeast Asia recorded $1.1 billion in private credit transactions.

The activity is being supported by the launch of funds to access local capital as well. Just this month, Aspire11, an investment platform backed by Czech financial group Partners, launched a €500 million fund to channel pension savings into startups and venture capital. India’s EAAA India Alternatives Ltd. raised 45 billion rupees (€435 million) for its first private credit fund.

In the Middle East, Saudi Arabia’s Public Investment Fund agreed to anchor a series of new funds brought by Goldman Sachs Group Inc.’s asset management unit that will focus on private credit and public equity strategies across all six states of the Gulf Cooperation Council. The Gulf region’s oil wealth and fast economic growth are making it a significant mover in private credit.

“One of the reasons we’ve been able to go out and raise bigger funds and do bigger deals is because the borrowers are getting bigger,” said Yaser Moustafa, head of emerging-market private investments at Janus Henderson Investors, adding both the opportunity and its returns “have never been better.”