Singapore’s Seviora Group, which has around US$55bn of assets under management, sees strong prospects for private equity and private credit, as difficult market conditions create opportunities for bespoke financing arrangements.
The group, a wholly owned subsidiary of Temasek Holdings, comprises Azalea Investment Management, Fullerton Fund Management, Innoven Capital, SeaTown Holdings and Seviora Capital.
Challenging market conditions in the past two or three years have made it difficult for private equity firms to exit their positions through IPOs. That is a particular problem for big companies and those that are highly levered and need to raise equity.
“A lot of capital is looking to be deployed and a lot of funds are looking for liquidity solutions for their existing portfolios,” said Dickson Loo, managing director in charge of private investments at SeaTown.
“Blended multiples have come down in the past two years. I think this will be conducive to new and interesting solutions.”
Owners of small and mid-sized companies have more options because these are easier to sell to other companies or funds.
“We did see that with small and mid-sized companies they didn’t use so much leverage and were not so affected,” said Chue En Yaw, chief investment officer at Azalea Investment Management.
“In the lower end of the market there is still a lot of activity going on. We have been increasingly leaning into mid-market funding. Because of the size they don’t really invite in a lot of investors, but because of our heritage we are able to access.”
SeaTown’s Loo said the new market conditions may mean private equity managers need to add more value to their acquisitions than simply using high amounts of leverage to enhance returns. That could include combining companies to manage cost pressures on businesses.
“Midmarket in the US has generated good returns,” said Jimmy Phoon, CEO of Seviora Group. “A lot of it is based on the strategy of ‘buy and build’. We are also seeing that in Asia, particularly where businesses are smaller and markets more diversified.”
Phoon noted that in Asia many companies are not sold through auctions but in bilateral transactions, benefiting asset managers with strong sourcing abilities.
Eddie Ong, deputy CIO and managing director for private investments at SeaTown, said that there is big potential for growth in the private credit market in Asia, which accounts for just 6% of the global market.
“Developed market private credit starts with financial sponsors, but it’s quite different in Asia,” said Ong. “A lot of deal structures are bespoke and highly collateralised.”
Ong said that while banks in Asia could offer a lower cost of funding than private credit, financing may not be tailored to companies’ cashflow profiles or accommodate future growth.
“They get lower rates than private debt, but the conditions may be so onerous that the borrower may not be able to function,” said Ong.