Alternative capital can fill the void as banks retreat
The gloomy economic outlook in the US and Europe is prompting banks to scale back their appetite for risk. Lending volumes in Europe have fallen heavily in 2022. And with the bond markets hamstrung by rising interest rates, many lenders are working through an overhang from major acquisitions that they would typically have sold into the capital markets.
Lenders in Asia Pacific have been less affected, partly because they stayed away from risky acquisitions, interest rates have been more stable, and banks are typically better capitalized than those in the US and Europe. Still, the uncertain outlook for the global economy is pushing banks towards bigger, safer borrowers, leaving smaller businesses short of the capital they need to reach their full potential.
Even before the advent of more challenging liquidity conditions, the International Finance Corporation estimated that Asia Pacific accounted for almost half of the $5.2 trillion unmet financing need among micro, small and medium enterprises around the world.
Alternative capital will be necessary to fill the gap.
Plugging Asia’s outsized funding gap
Asia’s alternative investment universe is expanding quickly. Over the past decade, Asia Pacific’s share of private equity assets under management grew 2.4 times faster than that of North America and 3.0 times faster than that of Europe. By 2021 the region accounted for 30% of the global total.
Private equity funds spent a record $296 billion in Asia in 2021, up almost $100 billion from the previous year.
But the arrival of high inflation, rising interest rates and tightening liquidity conditions have led to a sizeable dip in private equity activity in 2022. Not only are investors reluctant to take risks, but private companies are also unwilling to pursue equity financing given the depressed valuations in the current environment.
Private credit is rushing in
These conditions have set the stage for a boom in private credit and other alternative financing, which is growing rapidly from a small base. Realizing that there is now an unprecedented opportunity to take a leading roles in funding Asia Pacific’s growth, several big name alternative asset managers have announced bold plans to introduce or expand offerings in the region.
Also in response to prevailing economic and geopolitical uncertainty, investors and managers are shifting from unsecured lending to collateralized financing. The benefits include greater stability should central bank tightening persist and growth stall, as well as more diversified returns.
These benefits are not new, however. They have just become more apparent during the current bear market. EquitiesFirst has been offering professional, accredited and otherwise sophisticated investors the opportunity of securities-based financing for the past two decades, allowing such long-term shareholding investors access to low-cost funding throughout market cycles. Structured as a sale and repurchase agreement, at the end of the agreed term, we return the same number of shares to the investor, who then benefits from any appreciation of the underlying stock in the interim – a particularly valuable option for those reluctant to sell their positions during the current downturn.
EquitiesFirst generally provides financing equal to 60%-70% of the value of the securities, with shareholding investors retaining complete flexibility over the use of proceeds for business or investment use. They could use it to invest in their own businesses, diversify their portfolios, benefit from dislocations during market turmoil, or for any number of personal reasons.
With interest rates likely to remain elevated throughout 2023 and a recession in the US now seen as virtually certain, tight liquidity conditions are likely to persist until at least 2024. By offering financing on investor-friendly terms, we make it easier for long-term shareholding investors to ride out what could prove to be a protracted bear market.
More broadly, by providing a vital funding lifeline to businesses and entrepreneurs, alternative capital providers like EquitiesFirst are contributing to Asia Pacific’s economic rise at this critical juncture.
Past performance does not guarantee future returns, and individual returns are not guaranteed or warranted.
This Document is intended solely for accredited investors, sophisticated investors, professional investors, or otherwise qualified investors, as may be required by law or otherwise, and it is not intended for, and should not be used by, persons who do not meet the relevant requirements. The content provided herein is for informational purposes only and is general in nature and not targeted to any specific objective or financial need. The views and opinions expressed in this Document have been prepared by third parties and do not necessarily reflect the views and opinions of EquitiesFirst. EquitiesFirst has not independently examined or verified the information provided herein, and no representation is made that it is accurate or complete. Opinions and information herein are subject to change without notice. The content provided does not constitute an offer to sell (or solicitation of an offer to purchase) any securities, investments, or any financial products (“Offer”). Any such Offer shall only be made through a relevant offering or other documentation which sets forth its material terms and conditions. Nothing contained in this Document shall constitute a recommendation, solicitation, invitation, inducement, promotion, or offer for the purchase or sale of any investment product by First Holdings, LLC or its subsidiaries (collectively, “EquitiesFirst”), nor shall this Document be construed in any way as investment, legal, or tax advice, or as a recommendation, reference, or endorsement by EquitiesFirst. You should seek independent financial advice prior to making an investment decision about a financial product.
This Document contains the intellectual property of EquitiesFirst in the United States and other countries, including, without limitation, their respective logos and other registered and unregistered trademarks and service marks. EquitiesFirst reserves all rights in and to their intellectual property contained in this Document. The Document should not be distributed, published, reproduced or otherwise made available in whole or in part by recipients to any other person and, in particular, should not be distributed to persons in any country where such distribution may lead to a breach of any legal or regulatory requirement.
EquitiesFirst make no representation or warranty with respect to this Document and expressly disclaim any implied warranty under law. You acknowledge that EquitiesFirst is not liable under any circumstances for any direct, indirect, special, consequential, incidental, or punitive damages whatsoever, including, without limitation, any lost profits or lost opportunity, even if EquitiesFirst has been advised of the possibility of such damages.
EquitiesFirst makes the following further statements that may be applicable in the stated jurisdiction:
Australia: Equities First Holdings (Australia) Pty Ltd (ACN: 142 644 399) holds an Australian Financial Services Licence (AFSL Number: 387079). All rights reserved.
The information contained on this Document is intended for persons located in Australia only and classified as a Wholesale Client only as defined in Section 761G of the Corporations Act 2001. The distribution of information to persons outside this criteria may be restricted by law and persons who come into possession of it should seek advice and observe any such restriction.
The material contained in this Document is for information purposes only and should not be construed as an offer or solicitation or recommendation to buy or sell financial products.
The information contained in this Document is intended to be general in nature and is not personal financial product advice. Any advice contained in the Document is general advice only and has been prepared without considering your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. You should seek independent financial advice and read the relevant disclosure statements or other offer documents prior to making an investment decision about a financial product.
Hong Kong: Equities First Holdings Hong Kong Limited is licensed under the Money Lenders Ordinance (Money Lender’s Licence No. 1681/2023) and to carry on the business of dealing in securities (Type 1 licence) under the Securities and Futures Ordinance (“SFO”) (CE No. BFJ407). This Document has not been reviewed by the Hong Kong Securities and Futures Commission. It is not intended as an offer to sell securities or a solicitation to buy any product managed or provided by Equities First Holdings Hong Kong Limited and is only intended for persons who qualify as Professional Investors under the SFO. This document is not directed to individuals or organizations for whom such offers or invitations would be unlawful or prohibited.
Korea: The foregoing is intended solely for sophisticated investors, professional investors or otherwise qualified investors who have sufficient knowledge and experience in entering into securities financing transactions. It is not intended for, and should not be used by, persons who do not meet those criteria.
United Kingdom: Equities First (London) Limited is authorised and regulated in the UK by the Financial Conduct Authority (“FCA”). In the UK, this Document is only being distributed and made available to persons of the kind described in Article 19(5) (investment professionals) and Article 49(2) (high net worth companies, unincorporated associations etc.) of Part IV of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (‘’FPO’’) and any investment activity to which this presentation relates is only available to, and will only be engaged in with, such persons. Persons who do not have professional experience in matters relating to investment or who are not persons to whom Article 49 of the FPO applies should not rely on this document. This Document is only prepared for and available to persons who qualify as Professional Investors under the Markets in Financial Instruments Directive.