Investing in Asian private credit can offer a premium over similar deals in Europe and the US, in part because the supply of private debt capital is lower in Asia, Brian Dillard, head of Asia credit at KKR in Hong Kong, said in an interview with Bloomberg News.

In a report on Monday, KKR estimated that the ratio of the private equity to private debt assets under management is 30.8 times for the Asia-Pacific region compared with 5.2 times for the US and 3.5 times for Europe.

What’s your outlook for private credit in Asia?

I see continued growth. It’s a dramatically underpenetrated asset class. Companies in Asia don’t have the same access to capital in the forms that their competitors in the US Europe have. I think over time that will change.

As a share of global private credit, assets under management in Asia have actually gone down over the last five years. When I moved out it was like 8% and now it’s 6%. There’s been a lot of fundraising going into private credit, but we think investors have not been interested enough in the opportunities on offer.

That 6% of global private credit capital that’s been formed to go after Asia pales in comparison to the share of GDP growth or capital spending or kind any metric. We’re starting to see more and more investors become interested as we see the market expand pretty rapidly. But it’s still a pretty unique place where the demand for this capital exceeds the supply. From an investment standpoint, we like that.

It’s been more prevalent in Australia and India. I would expect it to spread across the region.

Why are there better returns in Asia private credit?

The demand is very strong and there’s a relatively thin amount of private credit that’s dedicated to Asia, so we see a return premium compared with the US and Europe.

It can be somewhere between 50 and a 100 basis points for an Australian sponsor-backed direct lending transaction all the way up to 4 percentage points to 5 percentage points for something that’s further down the capital structure in a jurisdiction in Southeast Asia. On average, we think it’s about 2 percentage points to 3 percentage points if you were to generalize across Asia.

Why is there growing demand for private credit in Asia?

Businesses are becoming bigger and more diverse geographically, and as part of that the demand for different types of capital has continued to expand. At the same time, private equity in Asia is now double the size of private equity in Europe, but the private debt market is almost four and a half times smaller.

What about getting your money back if a company goes bust? Are bankruptcy laws robust enough?

I would put the markets on a spectrum with Australia on one end and then some of the more emerging Southeast Asian economies, where there isn’t a very predictable or reliable bankruptcy process, at the other end. The philosophy that we have as credit investors is pretty simple, which is if a bankruptcy code isn’t reliable, then we aren’t going to rely on it. We’ll structure deals where we’ve got offshore collateral or collateral that’s held into escrow accounts or the ability to access a different jurisdiction where we can enforce.