Singapore-based funds seek to expand into new asset classes such as infrastructure and private credit—but only when the time is right.
In challenging conditions, general partners (GPs) and limited partners are looking for safe harbors to park their money until circumstances improve. They want to keep dry powder sitting in stable currencies or cash accounts, so it can be deployed quickly when confidence returns to the market.
Despite this air of caution, CSC’s The Future Private Capital CFO report reveals a scenario in which there’s still plenty of optimism about the fundraising climate over the next few years.
In Singapore’s private capital market, there are pockets of opportunity even now. Infrastructure investment has been a popular choice for Singapore-based managers over the past few years, digital data centers in particular, and could buck the global trend. There are still opportunities in this area, although some investors are wary of the ESG implications of power-consuming, cloud-computing facilities.
Diversified private credit investment strategies are also gaining momentum. Recent economic challenges have reduced the number of traditional funding sources available to growing businesses in the region. At the same time, investors are looking for reliable returns rather than spectacular ones. It’s an environment in which private credit can thrive.
As with their counterparts elsewhere, Singapore-based managers want to diversify into new asset classes and create more sophisticated growth strategies. Most, however, are currently in a holding pattern. There’s always pressure to deploy capital, but new fundraising campaigns are likely to be delayed until at least the middle of next year.
Exercising caution
Talking to private capital managers of Singapore investment funds over the past few weeks, it has become clear that the ramp-up in activity that October usually brings as managers prepare for fund launches in the first quarter of the new year was apparently less prevalent this year.
Despite current macroeconomic and geopolitical challenges, most of the respondents who contributed to The Future Private Capital CFO were optimistic about fundraising over the next two years. For each asset class, far more expected it to get significantly better overall than significantly worse.
However, the fieldwork for the report was carried out in the summer, and that optimism may be deflated following recent events. The conflict in the Middle East has led to fears of an escalation in the world’s most important oil-producing and exporting region.
Economists have raised the possibility of a prolonged war fueling inflation and causing central banks to keep interest rates higher for longer. That may dampen fund activity, which, may also include Singapore.
Interest from overseas
Of course, Singapore is also a popular domicile for overseas GPs looking for a foothold in Asia. In fact, that role has been expanding.
Overseas managers often see Singapore as part of their wider Asia Pacific (APAC) expansion strategy, thanks to the ease of setting up shop, a robust legal system, and the country’s wide network of experienced placement agents and fund service providers.
For example, Australian GPs often look to Singapore to widen their asset and investor base, a situation likely to continue when circumstances once again turn favorable. The Australian GPs surveyed for The Future Private Capital CFO 2023 report were far more likely to expand into APAC than any other region.
Again, there’s activity in this area, and CSC continues to set up and maintain Singapore-based entities for a significant number of overseas clients. But compared to recent years, the market is in a more cautious mode as it reviews the situation. Foreign managers see opportunities in APAC that can be accessed through Singapore entities, but they too are biding their time.
We expect that activity to ramp up next year, along with an acceleration of the trend to diversify into new asset classes. The Singapore fund management sector is poised and ready—but it is waiting for confidence to return. When interest rates start to fall, the starting gun will be fired on a new race for higher returns.
Download our The Future Private Capital CFO report for more information.
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