The Monetary Authority of Singapore (MAS) will invest $1 billion with global private credit fund managers, as it expands its Private Markets Programme (PMP), managing director Ravi Menon announced on Tuesday (September 20).
The PMP was launched in 2018 through which MAS would place up to $5 billion with private equity (PE) and infrastructure fund managers. The recent addition to private credit managers brings the size of the PMP to $6 billion.
“There are opportunities for private credit to play a larger role in Asian enterprise financing just like its private equity counterpart,” Menon said.
Because private credit uses floating rates, investors benefit from larger coupons when interest rates rise, he said. “Asset owners are swapping out part of their fixed income exposure for private credit, supporting demand for this asset class.”
“Given that private credit is higher up in the capital structure of a firm than private equity, the former can also offer investors better protection during a downturn,” he added.
Institutional investors have increasingly allocated to private credit in recent years, having touted the same benefits. Asset owners such as insurers have also favoured the asset class for its inflation-proofing nature.
Since 2018, $2.2 billion has been allocated through PE and infrastructure fund managers, which have committed to growing their assets under management in Singapore, Menon said.
“Some have designated the Singapore office as the regional headquarters, grown their value creation teams here, and collaborated with institutes of higher learning to create training programmes,” he said, without naming them.
Venture capital and PE assets under management have risen 42% year-on-year to S$555 billion ($392.53 billion) in 2021 in Singapore. The number of PE and VC managers in Singapore has grown to 428 as of June, up from 336 at the start of 2021.
The Asia Pacific region remains the top investment region for this group of managers, with 55% of assets invested within Asia Pacific, Menon said.
During the speech, Menon discussed a wide range of risks posed in the investment environment today, such as supply chain pressures, the energy transition climate change and geopolitical tensions, particularly between Europe and Russia and the US and China.
“There is increasing risk of bifurcation in crucial technologies, as the US and China seek to reduce their reliance on each other. As the two countries diversify their respective technology bases and supply chains, the development of important technologies such as semiconductors, artificial intelligence and 5G telecommunications will increasingly bifurcate,” he said.
But despite the uncertain global outlook and more cautious lending environment, private credit players are well placed to seize lending opportunities in Asia and globally, he said.
The private credit trend is not limited to Singapore. Asset owners in the US for instance have raised their target allocations for private debt, Sharmila Kassam, head of asset owner solutions at Nasdaq told AsianInvestor.
“Alternatives are becoming a bigger part of most portfolios… Private markets usually have a lag effect. So now that markets are down, some of these funds have gone down. Liquidity is a big aspect," she said.
"An investor that's thinking from the long term has to also keep in mind what their liquidity concerns are, and how to reconcile what they're doing in the private markets relative to their portfolios. I mean, it's not a short-term kind of perspective, it's very much long-term."