Nearly half of investors plan to boost EM private credit - Gemcorp survey

Gemcorp’s survey of 250 investment decision-makers found 42% plan to raise private credit allocations to emerging markets over the next two years, while fewer than 6% of current private credit portfolios are allocated to EM on average and 40% have no EM exposure. More than 70% expect higher risk than developed-market private credit, but last year investors still deployed a record $22.3 billion into EM private credit. The data suggest rising interest in the asset class despite persistent risk concerns, with the strongest appetite in the Middle East.

Analysis

The key second-order implication is not just incremental EM inflows, but a repricing of the financing mix for frontier and lower-rated sovereigns/corporates. Private credit can step into the part of the capital stack that public bond markets and bank syndications have been unwilling to fund, which should narrow funding spreads for borrowers with hard assets, contracted cash flows, or export receipts while widening the gap versus weak, unsecured names. That benefits EM lenders and structurers with local origination, documentation control, and workout expertise more than broad EM beta; the scarce resource is underwriting, not capital.

This is also a relative-value warning for developed-market private credit. If allocation shifts accelerate over the next 12-24 months, the easiest capital may migrate away from crowded U.S./Europe direct lending where default headlines are already pressuring underwriting standards and exit optionality. The second-order loser is not just lower-quality borrowers, but allocators that are long illiquidity at compressed spreads without country diversification or covenant control; they may find themselves competing for the same risk with weaker downside protection.

The contrarian read is that the survey itself likely underestimates how fast capital can move once a few anchor institutions prove the model works. The biggest constraint is perceived complexity, so a handful of successful deployments could trigger a faster-than-expected herd effect, especially in the Middle East where familiarity is already high. That creates a multi-year runway for EM private credit, but also raises the risk of a later-stage compression trade once consensus flips and “EM private credit” becomes a crowded label rather than a differentiated sourcing advantage.

Key Decisions for Investors

• Go long EM private credit managers with origination/control advantages versus generic direct lenders: prefer GEM-like platforms, regional specialty lenders, and funds with Africa/MENA coverage; target a 6-12 month entry window on any post-survey selloff in listed alternatives for 15-20% upside as AUM expectations re-rate.
• Short crowded developed-market private credit exposure via listed BDCs / alt managers with weak liability structures; use a 3-6 month pair long EM-specialist alternative asset names vs short broad U.S. direct-lending proxies if spreads stay tight and defaults keep normalizing.
• Initiate a barbell in EM high-yield sovereigns/corporates only where private credit can subordinate or secure cash flows: favor export-linked, asset-backed, and quasi-sovereign names; avoid unsecured consumer/commodity lenders. Time horizon 12-24 months; expect tighter funding but higher dispersion.
• Add exposure to green/transition finance platforms in EM through private markets or listed enablers; this is a levered beneficiary of capital migration because policy support lowers refinancing risk. Risk/reward is attractive over 1-2 years, but only with strict covenant and FX hedges.
• Set a catalyst watch on Middle East allocator demand and large first-loss/default outcomes; if a notable EM private credit vehicle prints strong realized recoveries, expect a wave of follow-on commitments and an acceleration in flows over the next 2 quarters.