The Business Times 19 Jul 2021 - New fund gears up to manage private debt portfolio of Singapore SMEs

Link to The Business Times

PRIVATE credit is a relatively nascent asset class in Asia, but a new fund is gearing up to offer investors exposure to a portfolio of loans to small and medium enterprises (SMEs) in Singapore. The manager behind the new fund is IFS Asset Management (IFSAM), a subsidiary of publicly listed IFS Capital, which itself has a core business of SME financing in Singapore and South-east Asia. IFS Capital is part of the PhillipCapital network of companies.

The IFSAM Private Credit Fund is IFSAM's maiden offering, open to accredited investors. It is a closed-end fund, with a maturity of three years. The firm is licensed by the Monetary Authority of Singapore as a Registered Fund Management Company (RFMC).

Lui Tuck Wing, IFSAM chief executive, said the fund offers investors exposure to a type of asset uncorrelated with traditional markets. "For investors who want to diversify, this is an alternative asset class. Investors who want to participate in direct lending usually cannot do it themselves. You need an infrastructure to be able to lend judicially and at a return (that) commensurates with the risks."

He said: "SMEs in Singapore are the most under-served or even unserved segment in the corporate space. Many have not been able to obtain sufficient banking facilities from mainstream banks...Especially after the global financial crisis, and other crises following that, banks have been actively downsizing their exposures, particularly their lending to SMEs.”

"Many government initiatives are geared towards supporting and giving SMEs a leg up. Many realise that large successful companies today started off as small SMEs, and because they were supported and have a good business proposition they were able to grow into large corporates. So it's important to keep maturing the SME population because among them, there may be global champions."

At the fund's launch in early August, IFSAM expects to raise around S$15 million from sponsor seed capital and early investors. A second round of capital raising is likely in another six months, for a target of around S$50 million in total assets.

Founding investors in the first round include parent company IFS Capital and the personal investment vehicle of Lim Hua Min, IFS Capital's chairman and executive chairman of the Phillip Capital Management Group.

The minimum investment in the fund is S$200,000 and there is a hard lock-in period of three years. The fund aims to pay dividends; the total return target is 4.5 to 5.5 per cent a year net of fees. The portfolio is positioned as a vehicle for capital preservation with bond-like yields and a predictable income.

For investors who may need to exit prematurely, the firm can help to find a party to take over the holding "on a best-effort basis". The firm is also exploring tokenisation of units in the fund, which would facilitate liquidity.

IFSAM will draw on the experience and track record of its parent company in SME lending; it will originate its own loan book. For the fund, the primary risk, among others, is credit quality. Mr Lui said: "We believe we have a very robust selection and credit assessment to enable us to select the winners in each industry who are likely to survive the ups and downs of the economic cycle."

Prospective borrowers are scrutinised for their operating cash flow which must be robust. To help in risk mitigation, the loans are collateralised - that is, the fund holds the first legal mortgage on property that the SME pledges to the fund, which may be commercial or residential property.

The loans are selected on a bottom-up basis. IFSAM's credit analysis and evaluation rest on four pillars. Three of the pillars are: a review of the macro-economic environment and industry; quality of management and ownership; and financial performance, which includes debt repayment capacity, leverage and liquidity.

The fourth pillar is the loan amount, structure and tenor, which must be appropriate and take into account the borrower's credit standing. In the event that the loan is impaired, the quality of the collateral is expected to mitigate against any credit loss.'

The portfolio is expected to comprise loans of around S$2 million each to an estimated 25 borrowers. This limits the exposure to any single credit to 10 per cent.

Based on Preqin data as at September 2020, assets under management in private debt in Asia-Pacific stood at about US$59 billion, up 161 per cent from 2016. Despite challenges brought on by Covid-19, 37 Asia-Pacific-focused debt funds raised an aggregate US$6.2 billion in their final close in 2020, compared with US$12 billion in the previous year.

IFS CAPITAL LIMITED’S SUBSIDIARY, IFS ASSET MANAGEMENT PRIVATE LIMITED, RECEIVED FINAL APPROVAL FROM MONETARY AUTHORITY OF SINGAPORE TO COMMENCE BUSINESS AS A REGISTERED FUND MANAGEMENT COMPANY

The Board of Directors (the “Board”) of IFS Capital Limited refers to the announcement dated 4 February 2021 in relation to IFS Asset Management Private Limited’s application to operate as a registered fund management company.

The board wishes to announce that IFS Asset Management Private Limited has fulfilled the requisite conditions imposed by the Monetary Authority of Singapore and was granted the approval to commence business as a registered fund management company.

IFS Asset Management Private Limited aims to serve as a platform for accredited investors to access private credit strategies built around the growth of the ASEAN SME segment. This will provide SMEs with greater access to specialized financing needed to grow and thrive in a complex environment.

By Order of the Board

Chionh Yi Chian / Angeling Ng
Company Secretary / Assistant Compant Secretary
22 April 2021
Singapore