Why emerging market private credit deserves a place in your portfolio
April 8, 2026
There is a version of this conversation that happens in investment committees with reliable frequency. Someone raises emerging market private credit. Someone else raises currency risk, political instability, or the difficulty of enforcement when things go wrong. The idea gets noted. The allocation does not happen. The committee moves on.
That pattern is understandable. For a long time, the risks were real and the tools for managing them were limited. What has changed is that the structural conditions making this asset class genuinely difficult have shifted, not cyclically but durably, and the allocators who recognise that shift earliest will access a return profile that is becoming harder to source anywhere else.
The data on where family office capital is moving reflects exactly this. Private credit allocations among global family offices doubled year on year, rising from 2% of portfolio in 2023 to 4% in 2024, with plans to increase further to 5% in 2025, according to the UBS Global Family Office Report 2025. The Goldman Sachs 2025 Family Office Investment Insights Report found that the proportion of family offices without any private credit exposure fell from 36% in 2023 to 26% in 2024, as investors seek to benefit from elevated rates and perceived downside protection. The Campden Wealth and RBC North America Family Office Report 2025, drawing on 141 North American family offices with collective wealth of $285 billion, confirms the direction of travel: private market investments remain a core focus, with 88% of family offices holding exposure to private markets, accounting for 29% of the average portfolio, and only 12% citing a decrease in private market exposure as a primary objective for 2025. The structural commitment to private markets, including private credit, has not reversed. It has matured from an allocation trend into a baseline expectation.
The question for allocators is not whether private credit deserves attention. That debate has largely been settled. The question is where within private credit the most compelling risk-adjusted opportunity sits, and why emerging markets warrant a closer look than most portfolios currently reflect.
The case starts with scarcity, not yield
The most honest entry point into emerging market private credit is not yield. It is scarcity.
In developed markets, the private credit opportunity is well-documented and well-subscribed. Spreads have compressed as institutional capital has flooded in, chasing the same mid-market borrowers across the same legal jurisdictions with the same covenant packages. The opportunity is not gone. It is crowded in a way that changes the mathematics for later entrants.
Emerging markets present the inverse. The IFC and World Bank's most recent MSME Finance Gap report, drawing on data across 119 emerging markets and developing economies, puts the financing shortfall for small and medium enterprises at $5.7 trillion — equivalent to 19 percent of GDP and 20 percent of total private sector credit. That figure, which is based on 2019 baseline data and covers formally registered businesses only, is best understood as a floor. When informal enterprises, updated demand projections, and the accelerating pace of credit contraction in developing economies are incorporated, the total financing need is estimated at $12.6 trillion annually. SMEs represent about 90% of businesses and contribute over 50% to global employment, with formal SMEs contributing up to 40% of GDP in emerging economies. These are not marginal or informal businesses. They are the productive backbone of their economies, viable and growing, and paying a significant premium to access credit precisely because formal capital cannot reach them efficiently.
That gap is not a market inefficiency waiting to be arbitraged away. It is a consequence of infrastructure that takes decades to build: commercial banking networks, credit bureau systems, collateral registries, legal enforcement mechanisms. The gap is structural. So is the yield it produces.
What has actually changed
The structural argument for emerging market private credit has been available for years. What is genuinely new is the capacity to act on it with confidence.
Legal and regulatory frameworks have matured. Across key markets in sub-Saharan Africa, Southeast Asia, and Latin America, creditor rights have strengthened, insolvency regimes have been reformed, and collateral enforcement mechanisms have improved. This does not mean every jurisdiction is equivalent to an OECD standard. It means that the variance between markets has narrowed, and selecting the right jurisdictions is now a tractable exercise rather than a speculative one.
Technology has changed what is possible at the credit layer. The emergence of digital lending platforms, alternative data sources, and mobile-first financial rails has fundamentally altered what a lender can know about a borrower before extending credit, and what mechanisms are available when a borrower defaults. Platforms built on this infrastructure can underwrite at a fraction of the cost of traditional bank lending, reach borrowers previously invisible to formal credit systems, and operate enforcement through digital channels that do not depend on a slow-moving court system.
Development finance institutions have built the structures that private capital can now use. The IFC, British International Investment, US DFC, and others have spent years developing the legal and structural infrastructure for private credit deployment in emerging markets. Their involvement in a transaction is not simply a credibility signal. It creates blended finance structures that absorb first-loss risk on behalf of commercial investors, improving the risk-return profile in ways that were simply not available to private allocators a decade ago.
The currency question, addressed directly
No serious treatment of this asset class avoids currency risk. It is real, it has caught investors before, and it deserves a direct answer rather than a reassuring footnote.
The first point is definitional. Not all emerging market private credit involves local currency exposure. Dollar-denominated credit facilities exist across most major emerging market economies, and in the private credit context, hard-currency lending is common where the underlying businesses generate dollar-linked revenues, which describes a significant portion of exporters, commodity processors, and technology platforms that represent the most investable segment of the market.
The second point is structural. For local currency exposure that does exist, the tools for managing it have improved considerably. Whether to hedge, partially hedge, or price currency risk into yield is now a portfolio construction decision rather than an insurmountable barrier.
The third point is contextual. When asked about barriers to investing in emerging markets, geopolitical concerns were cited most often by family offices (56%), alongside political uncertainty and sovereign default risk (55%), currency devaluations and inflation (48%), and legal uncertainty (51%). These are legitimate concerns. They are also manageable variables for a manager with genuine on-the-ground relationships, jurisdiction selection discipline, and experience operating through a full credit cycle. The allocators conflating these concerns with a reason to avoid the asset class entirely are applying a blunt instrument to a question that rewards precision.
The portfolio construction argument
Private credit in emerging markets does not need to be a large allocation to be meaningful. For most family offices and institutional portfolios, the relevant question is not whether to build a 20% position. It is whether a 5 to 8% allocation creates enough diversification benefit and return enhancement to justify the additional work.
The correlation argument is direct. Emerging market private credit returns are driven by fundamentally different factors than developed market equities or fixed income: local credit cycles, business-level performance, and the spread between cost of capital and available yield in undersupplied markets. That distinction has genuine portfolio value in an environment where traditional asset class correlations have converged under macro pressure.
The return argument is equally direct. Net yields in the high teens to low twenties are not uncommon for well-structured emerging market private credit. Those returns are not available in developed market equivalents at comparable risk-adjusted levels. The gap exists because the structural undersupply of credit that creates it is not closing quickly.
It is worth examining where US and European family offices sit on emerging markets relative to their peers. Globally, family offices allocated just 4% to emerging market equities in 2024 and 3% to emerging market bonds, with considerably lower allocations from US and European family offices than from those in Asia-Pacific. That divergence is not simply a risk appetite story. It is largely a proximity and access story. APAC family offices are closer to the networks, the deal flow, and the on-the-ground relationships that make emerging market deployment tractable. For US and European investors, the underweight to EM reflects a genuine access problem as much as a risk concern, in that they have not historically had a reliable entry point that matches their diligence standards and reporting expectations.
This is where private credit changes the picture in a specific way. Unlike an emerging market equity allocation, which is typically accessed through public markets or a blind-pool fund, direct private credit gives allocators line of sight into actual loan books, actual borrowers, and actual collateral. Done well, it also opens a channel to proprietary deal flow that is simply not available through a liquid EM allocation. For a US or European family office looking to build a meaningful emerging markets exposure for the first time, private credit is arguably the most direct and legible route in.
From manager selection to infrastructure selection
The traditional framing of private credit due diligence centres on manager selection: evaluating the GP's judgment, their sourcing relationships, their track record through a cycle, and their behaviour when a borrower is in distress. That framework is valid, and for most private credit mandates it remains the right place to focus. Credit decisions are long-duration commitments made at the discretion of a team, and the difference between a manager with genuine on-the-ground knowledge and one deploying capital from a distance is measurable in recovery rates and loss ratios over time.
But the emergence of technology-native credit infrastructure is beginning to shift where the real due diligence lies. When credit origination, underwriting data, settlement, and loan performance are embedded in a protocol layer with on-chain transparency and smart contract enforcement, the question changes materially. The relevant diligence is no longer primarily about trusting a manager's judgment. It is about understanding the origination network, the data infrastructure used to verify collateral, the settlement mechanics, and the governance of the protocol itself. GP discretion is replaced by programmatic rules. Opacity is replaced by continuous on-chain visibility. Sourcing relationships are replaced by structured origination channels with verifiable performance data.
This is not an argument that technology eliminates credit risk. It does not. It is an argument that the nature of the diligence conversation is evolving, and that allocators who understand this shift will engage with the next generation of credit infrastructure on more appropriate terms than those applying only the traditional manager selection lens.
Kingson publishes perspectives to help allocators think more carefully about capital deployment in high-growth markets. This piece represents our considered view, not investment advice. For allocator enquiries, contact advisory@kingsoncapital.com