“These are unusual and uncertain times,” said Cheng Khai Lim, executive director in the Financial Markets Development Department at the Monetary Authority of Singapore, the city state’s central bank and financial markets regulator. “But demand for private debt will only increase as banks and the public markets become more cautious.”
Lim was the keynote speaker on day one of PDI’s APAC Forum 2023 in front of a packed room at the Fairmont Singapore. He said optimism had been growing in the region with the worst of covid behind it and China re-emerging from its lockdowns. But the banking crisis has presented new challenges to pricing and financial stability.
For private debt, however, the signs are promising. He pointed out that, following the global financial crisis, private debt had grown in size by six times and “this may provide a crystal ball glimpse into today’s opportunity”. He said private debt assets under management globally had grown from $342 billion in December 2011 to $1.4 trillion in June 2022; in Asia-Pacific, AUM had soared from just over $3 billion in 2000 to over $90 billion in June 2022.
With fundraising and dry powder levels growing, and the average size of an APAC private debt fund going up from $195 million in 2020 to $380 million in 2022, many of the indicators are positive. However, Lim noted that APAC private debt AUM was only 6 percent of global private debt AUM – much smaller than APAC’s share of global AUM in general (30 percent).
He listed some of the factors which have stunted private debt’s development in the region including the fragmented and challenging nature of Asian markets, the differences within legal jurisdictions, diverse languages and cultures, and a lack of homegrown talent. These factors have hindered the region in its efforts to address a financing gap of $5.2 trillion every year.
Lim said Singapore was home to some 1,200 asset managers, 425 of them focused on private equity and 78 percent with origins outside of the city-state. He said it could offer strong protection of creditor rights and a visa system that was helpful in allowing managers to bring in talent from outside. In addition, he said, Singapore could be used as the governing law for origination and documentation for deals in the South-East Asia region, which has seen an increase in interest and capital deployed – in part due to capital moving there from China, where deployment has been difficult.