Nearly half of institutional investors plan to increase EM private credit allocations as pressure builds in developed markets, finds Gemcorp Capital

Rashad Iskandrni 

42%of institutional investors globally plan to increase EM private credit allocations over the next two years

        Rising defaults were the most cited challenge in developed market private credit (93%)

        EM accounts for only 5.8% of portfolios today, despite strong return expectations

 New research from Gemcorp Capital (Gemcorp) reveals nearly half (42%) of institutional investors plan to increase their allocation to emerging market (EM) private credit over the next two years. This comes as concerns grow around developed market private credit, following recent high-profile defaults and redemption pressures at large funds

Based on a survey of 250 institutional investors globally representing $20.9 trillion in AUM, Gemcorp’s second annual Emerging Market Private Credit Study suggests investors are becoming more selective about where they deploy capital and EM private credit is increasingly becoming an attractive alternative

Rising default rates are the biggest challenge in developed market private credit, identified by 93% of investors, followed by higher leverage (86%) and crowding in core market segments (85%).

Concerns around covenant-lite lending and return compression are also prompting investors to reassess the risk-return profile of more mature private credit markets, with many turning to EM private credit for diversification and less crowded opportunities

Emerging markets gain momentum as investors seek diversification

EM private credit is attracting the strongest investor appetite of any region. While 42% of institutional investors plan to increase allocations to EM private credit over the next two years, this falls to 25% for North America, 31% for developed market Europe and 32% for developed market Asia-Pacific

With 79% of investors saying EM private credit offers stronger return potential, returns are clearly a major draw. However, nearly two thirds (62%) also expect the asset class to deliver better diversification benefits than developed markets, suggesting investors are considering EM private credit as a way to broaden portfolio exposure as well as a route to higher yields

More than half (52%) expect annualised returns of 11% to 15% from EM private credit over the next five years, compared with around 8% for developed markets. If those expectations are met, this performance gap could support a broader reallocation of capital towards EM.

The findings build on Gemcorp’s 2025 study, which found that 90% of investors expected growth in EM private credit to accelerate or remain stable over the following five years, suggesting confidence in the asset class continues to strengthen.

Allocation gap remains significant

Despite growing conviction from investors, allocations still remain relatively low. EM private credit currently accounts for just 5.8% of private credit portfolios on average, while 40% of respondents have no current EM allocation at all.

The gap between appetite and allocations suggests EM private credit certainly has room to grow. As institutions deepen their understanding of the asset class, assess specialist managers and become more comfortable with risk mitigants, growing confidence could help translate interest into meaningful allocation growth

Felipe Berliner, Co-Founder and Head of Structuring at Gemcorp, said

“Developed market private credit is clearly no longer the default safe choice it once seemed. With 93% of investors citing rising defaults as a challenge, institutions are right to question whether the risk-return equation has shifted. EM private credit has become a compelling part of that conversation for investors prepared to look beyond crowded developed markets. Our report suggests that shift is already underway, with 42% planning to increase allocations over the next two years”