Leading sovereign wealth funds are increasing allocations to private credit in emerging markets, with commitments rising to $18.4 billion in 2025, up 42% from the prior year. This strategic pivot reflects growing confidence in EM fundamentals and is reshaping capital flows in high-growth sectors.
- Sovereign wealth funds increased private credit commitments to emerging markets to $18.4 billion in 2025, a 42% YoY rise.
- GIC and Norway’s Government Pension Fund Global are key players, with GIC allocating $3.2 billion to EM private debt in 2025.
- EMB has outperformed developed-market high-yield by 2.8 percentage points year-to-date in 2025.
- Private credit now comprises 18% of new project financing in countries like Colombia and Vietnam.
- EM private credit deals are increasingly focused on real estate, infrastructure, and mid-market corporates.
- LQD yield spread narrowed to 3.9% in early 2026, reflecting improved risk sentiment.
A growing number of sovereign wealth funds are turning to private credit in emerging markets, driven by the search for higher yields and diversification amid flattening developed-market returns. In 2025, total private credit commitments from SWFs to EMs reached $18.4 billion, according to updated institutional investor reports, marking a 42% year-over-year increase. These funds are particularly targeting real estate, infrastructure, and mid-market corporate financing in regions including India, Indonesia, Mexico, and South Africa. The shift is underpinned by strong underlying fundamentals in select EM economies, where nominal GDP growth averaged 5.1% and inflation remained below 6% in 2025, creating favorable conditions for risk-adjusted returns. Funds such as Norway’s Government Pension Fund Global and Singapore’s GIC have increased direct lending and co-investment vehicles in EM private credit, with GIC alone allocating $3.2 billion in new private debt deals across Southeast Asia and Latin America. This capital inflow is having measurable effects on EM financial markets. The JPMorgan EMBI Global Diversified Index (EMB) has outperformed developed-market high-yield debt by 2.8 percentage points year-to-date, while the iShares ESG Emerging Markets ETF (ESGE) has seen net inflows of $860 million in Q4 2025. The iShares Latin America ETF (EEM) and the iShares USD High Yield Corporate Bond ETF (LQD) reflect broader investor sentiment, with EEM posting a 14.3% return in 2025, and LQD's yield spread narrowing to 3.9%—its tightest level since 2022. Private credit’s rise is also altering capital structures in EMs, reducing reliance on traditional bank lending and enabling long-term infrastructure and real estate projects. This trend is particularly beneficial for countries like Colombia and Vietnam, where private credit now accounts for 18% of new project financing, up from 9% in 2022. As institutional appetite grows, market participants expect continued pressure on EM borrowing costs and strengthened local currency stability.