Some 42% of institutional investors expect to boost their private credit allocations to emerging markets over the next two years, according to a survey conducted by Gemcorp, an asset manager focused on emerging markets. The finding suggests potential for meaningful additional capital to flow into developing economies, although current exposure remains small for many investors.
The global private credit market is estimated at about $3.5 trillion, as reported by the Alternative Investment Management Association, yet only a fraction of that total currently reaches emerging markets. In Gemcorp's poll of 250 investment decision-makers spanning 22 countries, respondents on average allocated fewer than 6% of their private credit portfolios to emerging markets. Moreover, 40% of those polled reported having no private credit exposure to emerging markets at all.
Perception of elevated risk in emerging-market private credit continues to be a dominant constraint. More than 70% of survey participants said they expect higher risk in emerging-market private credit relative to developed markets. Gemcorp's co-founder and head of structuring, Felipe Berliner, noted that this perception is a recurring theme in investor conversations and that understanding of the structural protections available in the asset class is limited among many investors.
"It is a view we have encountered regularly in conversations with investors for over a decade, but one we believe is misunderstood and changes significantly when investors become more familiar with the asset class," Berliner said in the report. "What this study also reveals is that only a minority of investors believe they have a full understanding of the structural protections available in emerging market private credit."
Concerns about defaults in the developed-market private credit sector are influencing investor attitudes. Gemcorp found that over 90% of respondents saw rising defaults as a challenge for private credit, and just over half described rising default rates in the developed world as a "significant" challenge. Those worries have already contributed to increased interest in emerging-market private credit: data from the Global Private Capital Association recorded a record $22.3 billion of private credit investment into emerging markets last year.
Responses varied markedly by investor region. More than 90% of Middle Eastern respondents were already allocating to emerging-market private credit, while only 42% of North American respondents reported such allocations. Regionally specific appetite for destinations within emerging markets also differed: 57% of Middle East-based respondents rated Africa as an attractive destination for private credit, compared with an average of 28% across all respondents.
The survey population included institutional types such as private and public pension funds, insurers, endowments and foundations, and family offices. Taken together, the results point to both an opportunity for increased capital flows into emerging-market private credit and persistent informational and risk-perception barriers that investors say limit broader adoption.
What the survey shows
- Intent to increase allocations to EM private credit: 42% of institutional investors plan to raise exposure within two years.
- Current allocations are low: respondents on average allocate under 6% of private credit portfolios to emerging markets; 40% have no EM allocation.
- Risk perception and default concerns: more than 70% view EM private credit as higher risk than developed markets; over 90% see rising defaults as a challenge.