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A Charismatic approach to share-based lending

Charismatic Capital, a Singapore-based manager, has pioneered a strategy that involves investing in fully secured stock loans. We find out more from founder Lam Ching Ching.

In 2014, Singapore-based former banker Lam Ching Ching saw an opportunity to originate loans secured against Asian listed equities in an unusual combination of non-bank lending and public markets, and founded Charismatic Capital. We caught up with her to find out more about the strategy and how it has fared amid the global pandemic.

Lam Ching Ching

Could you briefly describe the strategy?

Charismatic Debt Equity Fund’s investment strategy aims to provide a three-year recurring, steady high-yield income. The returns can be achieved through over-collateralisation of secured debt against listed equities in Hong Kong (50 percent), Indonesia (25 percent), Singapore (10 percent) and Thailand (15 percent) without correlation to other asset classes. In fact, the loan period is on an annual roll-over basis, capped at three years.

We favour listed companies with good environmental, social and governance practices and swerve away from companies that compromise on moral values and those that do not prioritise reducing environmental impact as a business imperative. We denounce companies that demonstrate poor or questionable corporate governance.

Would you say the approach is unique, and how did you first become aware of the potential for a strategy like this?

Yes, I do believe that our approach is unique and niche. At the moment, there is no other existing fund in the market that specialises in stock financing the way we do. It started when I was serving the shareholders of multiple listed companies, which frequently requested share financing from the private banks that I was working with. Having been exposed to such clients throughout two decades of my private banking career, it has definitely honed my loan origination as well as financial and credit analysis skills.

How does focusing on the public markets differ from private debt?

I opted for high-quality liquid collateral, with valuations that are required to be easily accessible and objective. Hence, focusing on publicly listed shares is ideal in this scenario. When it comes to valuation, private shares are subjective and illiquid – which is to say, unable to be converted into cash instantly.

Describe the types of companies you typically back and why they would come to you for financing rather than other sources?

Our target companies are those that are profitable with a sound business foundation, as well as those with a strong ESG focus. However, many businesses have been negatively impacted due to covid-19 and are experiencing interim cashflow issues during this period of crisis. They usually have small to mid-market capitalisations, and raising funds in the capital markets is not only a difficult feat for them but remains costly and time-consuming.

“From our perspective, covid has been a blessing in disguise as we have had more companies come on board for private debt lending”

Since 2020, financial institutions have tightened credit and since 2008 have no longer been interested in single-stock financing. As a result, many companies approach private lenders like us – which are more aggressive and have a quicker turnaround time to obtain loans. The loan process is also shorter and straightforward. Due to these advantages, companies often do not mind paying a premium for the loans, rather than going to other

Could you share more about the fund itself? How much capital you have available to invest and which investors support you?

I wanted to differentiate myself from the rest of the private lending community by getting my lending entity licensed and regulated. On top of the current fund in Singapore, I have also set up a private credit fund in Ireland. The Irish fund has two years of sound and proven track record, with a hard commitment of $600 million and the investors that support me in this fund comprise mainly European investors. On the other hand, the Singapore fund is still open for subscription and mainly caters to Asian investors – with a majority consisting of family offices and high-net-worth individuals.

How quickly do you invest the capital, and what sort of returns are you able to achieve?

We have always had a strong dealflow and this has increased in view of the covid-19 pandemic. It’s a matter of fact that we will always have stock loan deals in the pipeline and this means that no capital is left idling at any point in time. So far, we have been consistently achieving an average gross return of 15 percent per annum.

Will you stay focused on this strategy, or do you see opportunities to grow the business in other areas?

As our investment strategy is unique and niche, we prefer to continue with the same strategy, as there are many untapped opportunities on stock exchanges. Furthermore, we have vast opportunities as companies are increasingly being listed worldwide.

How has covid affected your market and how do you view prospects over the next year or two?

From our perspective, covid has been a blessing in disguise as we have had more companies come on board for private debt lending. With the pandemic negatively impacting businesses across all industries and sectors, no one has been spared the wrath of this economic downtown and, as a result, many companies are financially anaemic in one way or another. The number of companies listed on the stock exchange is growing and we expect the flow of deals to remain strong and grow continually.

How do you view the potential for the growth of debt financing in Asia-Pacific, whether public or private?

As many companies turn to capital markets for fundraising, the potential is huge, especially in the public sphere.

Is there more interest from Asia-Pacific-based investors? Are they likely to be more ‘home-based’ rather than looking to invest internationally?

Many investors including those from Asia are yield-hungry, as a result of the ultra-low interest rate environment. With frothy bond valuations that sow miserable yields, investors are now keen to invest in the private credit asset class as it is not only uncorrelated to other asset classes but generates steady recurring yields.