Singapore's private credit industry boosts regional demand
It's early days, yet Singapore's budding private credit industry is helping sponsors and investors source more regional deals, evincing more interest from asset owners.
While the bulk of deal-making in private credit is concentrated in the US and Europe, Singapore's efforts to become a regional hub is helping investment managers develop more localised offerings.
“We are increasingly seeing Asia-based sponsors looking to invest in Asian opportunities [in private credit],” Chune Loong Lum, partner at legal firm Ropes & Gray’s asset management group, told AsianInvestor.
Traditionally, Asia Pacific was fertile hunting ground for fundraising for private credit sponsors.
Ropes & Gray
The region is gradually developing its own private credit industry, which is attracting institutional investors from other parts of the world.
Private markets specialist Muzinich & Co offers one example of that trend.
Its Asia Pacific private debt fund has raised 40% of its capital from outside the region, according to APAC CEO and Head of Private Credit Andrew Tan.
The firm also has a mandate to develop and grow product capabilities from Asia, added Tan.
The industry has also spawned Singapore-headquartered entities including alternatives investment manager SeaTown Holdings; EvolutionX Debt Capital, a growth stage debt financing platform jointly set up by DBS and Temasek; and Innoven Capital, a venture debt and lending platform created by Seviora, an asset management group owned by Temasek, and United Overseas Group.
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FROM NON-PERFORMING TO PERFORMING
This growth in entities -- and booming investor demand -- is changing the profile of offerings.
“Direct lending to performing business is hot right now," said Muzinich’s Tan.
Muzinich & Co
“In Asia, the typical calling-card strategies have been distressed and special situations funds. For the first time in the past five years, we have an organised and instituionalised market where you can invest in strategies that lend to performing businesses."
Investor interest in Asian private credit spans across markets.
“Indonesia is a very interesting market, and traditionally a big private credit market. India is another market of interest, along with Philippines, Vietnam and Malaysia. Korea is also coming up,” said Muzinich’s Tan.
Yet, Asian private credit is not a homogenous market – it consists of different markets at different stages of development and with regulatory regimes.
Private credit dealmaking across Asia requires understanding local markets and regulatory systems, as well as appreciating nuances surrounding credit protection and operating businesses in different geographies.
"Given the extensive travel to local markets expected when sourcing, selecting, investing and monitoring deals, having a base of operations in Singapore can be ideal," said Ropes & Gray's Lum.
Several smaller markets also don't have robust regulatory regimes or have regimes that are as yet untested when private credit deals go bad.
“Singapore, Australia, Hong Kong and Japan have highly developed regulatory regimes and there are well-established processes in place regarding insolvency, which gives private credit fund sponsors a lot of comfort when deploying capital,” added Lum.
“Private credit providers operating in these markets know what protections they have and that helps them in deal making."
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GOOD BASE
Singapore, therefore, offers a good jumping-off point to explore surrounding markets.
"Forward looking and politically stable, Singapore is strategically located in the middle of Asia Pacific. When a sponsor decides to build a team of investment professionals and deploy their funds across the region, the city-state is increasingly viewed as an ideal location,” said Lum.
Digital alternatives marketplace Alta, formerly Fundnel, for instance, is thinking about pushing into other markets from its Singapore office.
Alta
"Apart from Singapore and Malaysia, we are looking at entering Hong Kong and Thailand, although we still have to consider the regulatory framework in each of these markets and how we can enter cost-effectively,” Kelvin Lee, co-founder of Alta, told AsianInvestor.
Still, while Singapore is helping develop the regional private credit market, the bulk of exposure among Asian institutions remains global.
Most of the world's largest private credit managers are based in the US and Europe, and those markets are more mature as well.
Endowus
“A lot of strategies are US dollar-denominated and investors here are trying to earn a return/yield in US dollars,” Gregory Van, CEO at digital wealth platform Endowus.
“If the strategies were Asia-based, investors would be required hedge currencies as well.”
BNP Paribas AM
Demand for global products continues among Asian institutions, as entities such as BNP Paribas Asset Management can attest.
The asset managers focuses on offering European private credit to its clients in the region.
“Our products and capabilities focus purely on the Europe side, which is natural because we are backed by one of the largest European banks,” Singapore CEO Angelia Chin-Sharpe told AsianInvestor.
“This space is all about sourcing good deals and as a global European asset manager, we appreciate and understand the opportunities and inherent risks across European economies and this supports our due diligence when we are offered opportunities to participate in [private] deals," she said.