Blackstone Eyes Japan Private Credit Boom

In Brief:

Japan's private credit market is poised for explosive growth as the country experiences its busiest M&A year in three decades, with deal values doubling to $300 billion in 2025 and creating unprecedented demand for sophisticated financing structures that traditional banks cannot provide. Mark Glengarry, Senior Managing Director and Head of Asia-Pacific Private Credit Strategies at Blackstone, joined Bloomberg's Global Credit Forum in Tokyo alongside Nissay Asset Management CIO Daisuke Fukayama to discuss how international private credit firms are navigating Japan's evolving capital markets. After four years of patient market education, Glengarry sees the country reaching an inflection point where corporates increasingly understand how private credit can complement bank relationships through hybrid debt-equity structures designed for massive CapEx projects—from AI infrastructure to energy transition—that require years to convert investments into cash flow.

Big Picture Drivers:

• M&A Explosion: 2025 marks Japan's busiest M&A market in 20-30 years with $300 billion in deals led by Japanese acquirers, creating enormous private credit opportunities

• CapEx Financing Gap: Large-scale capital expenditure needs in AI, data centers, and energy transition exceed what traditional bank loans can efficiently structure

• Market Education Maturity: Four years of relationship-building has elevated Japanese corporate understanding of private credit products and structuring capabilities

• ROE Pressure: Shareholder demands for improved return on equity are pushing asset-rich Japanese corporates to seek innovative capital structures

Key Themes:

• Complementary Strategy: Blackstone positions private credit as complementary to banking relationships rather than competitive, focusing on solutions banks don't naturally provide

• Hybrid Structures: The opportunity centers on sophisticated structures between debt and equity for corporates with significant assets but multi-year CapEx conversion timelines

• Market Convergence: Credit pricing between Japanese and US markets is narrowing significantly, with the delta in senior leverage loans no longer what it used to be, attracting international capital

• Quality Foundation: Japan's offshore bond market maintains a strong starting point with over 80% of issuers rated BBB or above and half rated single-A

Key Insights:

• Banking Complementarity: Blackstone's Japan strategy explicitly avoids competing with banks on products where they provide good local solutions, instead focusing on complex CapEx financing and hybrid debt-equity structures that help asset-rich corporates improve return on equity for demanding shareholders.

• Market Maturity Timing: After four years of market education, Glengarry expects to see "a number of large private credit transactions in the coming couple of quarters," suggesting the education cycle is reaching critical mass among Japanese borrowers.

• Structural Differentiation: Private credit structures differ fundamentally from bank loans by providing flexibility for companies with substantial assets but large CapEx needs that take multiple years to invest and generate cash flow, creating hybrid solutions between traditional debt and equity.

• Transparency Defense: Recent fraudulent loan cases represent bank-led processes rather than private credit platforms, with leading managers providing quarterly transparency and long-established track records while maintaining substantially lower loan-to-value ratios than during the global financial crisis.

• Sector Focus Strategy: International private credit investors will concentrate on high-growth sectors including life sciences, energy transition, power, data centers, and digital infrastructure—areas where CapEx demands and growth rates justify sophisticated capital structures.

• Natural Currency Demand: Japanese M&A activity is predominantly offshore as companies seek growth opportunities outside Japan, creating organic demand for financing in currencies beyond yen and naturally pulling corporates toward international capital markets.

Memorable Quotes:

• "We don't see ourselves competing against banks for products that banks provide a good local solution." - Mark Glengarry, outlining Blackstone's collaborative rather than competitive approach to Japan's banking relationships

• "Every time I come back, the level of understanding is better." - Mark Glengarry, on the progress of market education after four years of relationship-building in Japan

• "I'm really optimistic you're going to see a number of large private credit transactions in the coming couple of quarters." - Mark Glengarry, predicting imminent deployment as education efforts reach fruition

• "It's not a situation where you're going to go for a private credit solution every time. In many cases, the banks will provide the right solution." - Mark Glengarry, emphasizing the selective application of private credit structures

• "Some of that noise that you see in the market we don't think is representative of the leading platforms and the leading players." - Mark Glengarry, defending private credit transparency against recent fraudulent loan concerns

The Wrap:

Blackstone's disciplined four-year approach to educating the Japanese market appears positioned to capitalize on a perfect storm of opportunity—record M&A activity, massive CapEx demands from AI and energy transition, and shareholder pressure for improved returns on equity. The firm's strategy of complementing rather than competing with traditional banks addresses a critical gap in the market: sophisticated hybrid structures for multi-year capital investments that don't fit the vanilla loan profile. While Fukayama's warnings about fraudulent lending and tight credit spreads provide important context about broader market risks, Glengarry's confidence in imminent large transactions suggests private credit is moving from education phase to deployment phase in Japan. The convergence of Japanese and US credit pricing, combined with natural offshore financing needs from cross-border M&A, creates a structural tailwind that could establish Japan as a significant growth market for international private credit platforms over the coming years.