Temasek backed Seviora Group eyes mid market growth amid private equity optimism

Global economic shifts have brought mid-market investments to the forefront of institutional focus, particularly in Asia, according to Seviora Group, a wholly owned subsidiary of Temasek Holdings.

 

The group, which has around $55 billion of assets under management, is also the operational holding company for five asset management companies. 

 

These firms are Azalea Investment Management, Fullerton Fund Management, Innoven Capital, SeaTown Holdings and Seviora Capital.

 

“For our strategies, we have increasingly leaned towards mid-market managers, which are usually smaller in fund size and are capacity-constrained. These managers don’t actively seek new investors, which makes access to them more exclusive. This is where our long-standing reputation and network come into play,” said Chue En Yaw, CIO at Azalea Investment Management.

 

Despite their limited public visibility, mid-market investments are a growth driver.

 

In 2023, large-cap transactions, which cover enterprises valued over $2.5 billion,  accounted for 49% of the total transaction value, according to data from Hamilton Lane, a US-based investment firm.  However,  large-cap transactions only represented 5% of total transaction volume. 

 

Of the 1,368 transactions recorded in 2023, the middle market and lower middle market accounted for 95% of the total transaction volume, meaning that there were more potential deals, but fewer dollars and buyers compared to the top end of the market, Hamilton Lane said. 

 

“When we talk to managers about the mid-market space, they tend to operate under the assumption that high interest rates are a constant rather than something that might fluctuate,” Chue said.

 

Exploring the evolution of this space, Jimmy Phoon, CEO of Seviora Group, remarked, “Mid-market investments in the US have consistently generated strong returns, largely due to managers focusing on strategies like buying specific businesses and then building them up through add-ons and expansion.

 

“In Asia, we’ve observed a similar strategy being employed,” Phoon added.

 

Dickson Loo, Managing Director of Private Investments at SeaTown, echoed this sentiment.

 

“Traditionally, business owners in this space were somewhat hesitant, but they have become much more sophisticated on both the private equity and private credit side, driving the growth in the mid-market segment.”

 

However, this success is closely tied to managers with differentiated strategies that can navigate the complexities of today’s markets.

 

“Even within the mid-market space, certain sectors are more vulnerable to rate hikes and tariffs,” noted Chue.

 

PRIVATE EQUITY’S EVOLVING LANDSCAPE

 

The private equity sector is overall undergoing a shift and the Seviora Group remains sanguine about the prospects. 

 

In particular, liquidity has improved, according to Loo. 

 

“Additionally, new and innovative solutions, such as continuation funds and secondaries, are providing GPs with alternative avenues for exits. These developments signal a more dynamic and adaptive private equity landscape,” Loo added. 

 

Loo identified healthcare and business services as sectors of focus for now, noting their resilience and sustained demand.

 

“We are focusing on businesses that generate strong cash flows. We typically acquire companies at modest valuations. We then consolidate and grow them without relying on leverage as a significant driver,” said Eddie Ong, deputy CIO and managing director of private investments at SeaTown.

 

While there are no favourite sectors, India, Australia, and Southeast Asia are amongst the best places to invest, according to Ong.  

 

GROWING POTENTIAL IN PRIVATE CREDIT

 

Private credit, particularly in Asia, has become a dynamic space with significant room for growth.

 

Ong noted, “Asia hasn’t experienced the same level of influx into private credit compared to other regions. As a result, we are still aiming for mid-teens net returns, which are significantly higher than the current returns from developed markets.”

 

Asia’s market complexity, characterised by jurisdictional diversity and varying economic cycles, offers challenges and opportunities.

 

“The key to success lies in identifying seasoned managers with extensive experience in navigating the Asia-Pacific credit market,” Ong explained.

 

He also highlighted the importance of flexibility in structuring deals to achieve favourable risk-adjusted returns.