SINGAPORE Trends and Developments Contributed by: Susan Wong, Christy Lim, Bernadette Tan and Clarence Kang, WongPartnership LLP
Private credit funds in pole position Private credit funds are likely to outperform private equity funds for a third consecutive year in 2025. A report by index provider MSCI, dated 29 April 2025, revealed that private credit generated a return of 6.9% in 2024, exceeding that of private equity at 5.6%. This could be a result of benchmark interest rates not falling as quickly as anticipated (since private debt is generally priced at a premium and tends to yield stronger returns when borrowing costs remain elevated) and from comparatively easier exit oppor- tunities as compared to private equity. While private equity relies on initial public offerings and mergers and acquisitions for exit opportunities, which are directly impacted by market volatility stemming from US tariffs and trade negotiations, private credit’s fixed-maturity debt potentially allows for smoother exits via refinanc- ing, sale, negotiated resolution or maturity. Fund Financing Southeast Asia’s private equity market experienced a significant rebound in 2024, with deal value rising 60% to USD16 billion compared to 2023, led by a sharp increase in deal value in Singapore. Singapore has had nearly four times the deal value and close to triple the deal volume (raising USD4.05 billion across 369 deals in the first three quarters of 2024) compared to the next two leading ASEAN markets by deal value. As the first quarter of 2025 began, private equity deal activity from Singapore-linked funds remained strong, despite a decline in global private equity activity. A notable development in the Asian fund financing landscape is the emergence of limited partner financ- ing arrangements, whereby banks lend against an investor’s interest in a fund as opposed to the more common subscription-line financing. Such structures carry added complexity and risk, since lenders must thoroughly assess the creditworthiness and liquidity of such interests in the context of different fund vehicles. Consequently, many banks tailor bespoke financing solutions for clients holding limited partner stakes. This is particularly prevalent when those stakes reside in the bank’s own fund platform, given that familiar- ity with their proprietary structures allows banks to streamline implementation and reduce associated risk and set-up costs.
Subscription credit facilities Despite the rapid growth of private credit funds (and infrastructure funds) in Asia, the fund finance market remains primarily driven by subscription credit facili- ties. Whilst demand for new subscription credit facili- ties has slowed over the last 12 to 18 months, by and large due to the high interest rate environment rela- tive to recent years, this slowdown appears to have been offset to some extent by refinancing and maturity extension activity and by funds that have not tradition- ally used subscription credit facilities breaking into the market. There has also been significant growth in the subscription credit facility market, which is evident in the increase in the provision of subscription credit facilities to separately managed account funds, grow- ing interest in ESG and sustainability-linked subscrip- tion credit facilities, as well as bespoke and custom- ised products, such as Sharia-compliant subscription credit facilities. Alternative financing solutions Apart from subscription credit facilities (which have traditionally been the primary driver of the fund finance market), Asian funds are increasingly focused on alter- native financing solutions to supplement subscription credit facilities and net asset value (“NAV”) facilities and hybrid facilities that can be used during the life- cycle of a fund have been adopted. NAV facilities are typically used towards the second half of a fund’s life- cycle, where, as a result of capital commitments hav- ing been drawn to make investments, there may be insufficient undrawn capital commitments to provide an adequate borrowing base for establishing a sub- scription credit facility. A NAV facility is typically raised against a small pool of the underlying investments of a fund, with recourse to the fund’s distributions and cash flows from those investments. While the NAV facility market in Asia and Singapore has room for growth, it has yet to match the expansion levels seen in the US and Europe in recent years. ESG Financing – Impact Financing, Transition Finance and Blended Finance Singapore has also been experiencing a rise in impact financing, which generally refers to financial activities and investments that seek to generate positive, meas- urable social, environmental, and economic impacts alongside a financial return.
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