Tikehau and UOB Kay Hian partnering on private credit as interest continues to grow

ALTERNATIVE asset manager Tikehau Capital and brokerage UOB Kay Hian (UOBKH) have joined forces to launch a private credit fund, becoming the latest in a growing list of companies that are cutting deals to enter a fast-growing space.

Both sides have committed US$50 million each to the fund, which will focus on providing financing to mid-sized companies in Asia-Pacific.

Market sources said the fund is targeting an initial size of US$300 million.

Antoine Flamarion, one of Tikehau’s co-founders, said the interest rate cycle is at a sweet spot for both borrowers and lenders.

Interest rates are high enough to attract capital, while companies are starting to think about refinancing.

The fund will focus on cash flow-positive and profitable companies, in markets such as Australia, Hong Kong, Malaysia, New Zealand, Singapore, South Korea and Taiwan.

Ticket sizes are expected to start from US$20 million and may go up to US$100-plus million with a co-investor, Flamarion added.

UOBKH, a unit of UOB , said the partnership is “consistent” with its business objectives.

“Over the years, we have selectively provided financing to substantial shareholders and promoters to support their equity investments into their businesses. Meanwhile, our wide spectrum of clients are always on the lookout for attractive investment products to build and protect their wealth,” the brokerage’s management said.

The partnership comes days after US bank Goldman Sachs and Abu Dhabi state investor Mubadala announced a similar venture.

Mubadala has committed US$1 billion to the partnership, which will be sourcing private credit business across Asia-Pacific but with a particular focus on India.

Bloomberg put the global private credit market at US$1.7 billion in size – more than double what it was five years ago.

Much of that is in the United States and Europe, where private credit is a more mature asset class.

According to data from Preqin, Asia represents 7 per cent of global private credit assets under management (AUM).

Preqin forecasts private debt AUM will grow 11.1 per cent per annum on a compounded basis from 2022 to 2028, to hit US$2.8 trillion.

“Our analysis suggests India and South-east Asia are in particular favour for investors seeking opportunities in emerging markets,” said RJ Joshua, vice-president and head of private debt and fees at Preqin’s research insights team.

In Asia, the direct-lending market is estimated at US$56 billion. Non-bank lending is roughly 21 per cent of the total credit market, according to Bank for International Settlements data from last year.

The direct-lending market in Europe, meanwhile, is estimated to be US$386 billion, and non-bank lending is 46 per cent of the total.

In the US, the direct-lending market is estimated to be US$1.25 billion; non-bank institutions account for 67 per cent of the pool.

Private credit has managed to expand fast in the US and Europe partly because banks were faced with significant capital constraints in the aftermath of the global financial crisis.

Having lost market share, however, these same banks are launching strategies – often in partnership with other players – to tap the growth in private credit.

Earlier this month, BNP Paribas announced a partnership with Blackstone to launch a private credit fund for retail investors.

Societe Generale and Brookfield Asset Management announced in September last year a private credit partnership targeting seed funding of 2.5 billion euros (S$3.65 billion), with the intention to grow to 10 billion euros in four years.

That same month, Deutsche Bank launched DB Investment Partners to grow its private credit presence.

Also in September last year, Wells Fargo partnered private equity firm Centerbridge to lend directly to middle-market companies.

Barclays has reportedly earmarked a portion of its balance sheet to participate in financings arranged by direct-lending funds, and JPMorgan Chase is said to be seeking a private credit partner.

Some of those partnerships are trying to originate deals in Asia, too.

Mathieu Chabran, who is also co-founder at Tikehau, said that although Asian banks are “not as capital constrained as in other markets, there is also a need for more sources of liquidity”.

Chabran also believes private credit is here to say.

“There was a period when it was very cyclical, because there was a shortfall in liquidity,” he said. “It has become much more structural. The banks tend to focus on the big companies; and the capital markets, if you don’t tick certain boxes, you won’t be eligible to issue.”

This leaves middle-market companies – those with revenue of US$100 million to US$200 million, and US$15-20 million of earnings before interest, taxes, depreciation and amortisation – struggling to access capital.

Tikehau hopes to be among the early movers in this space in Asia. Said Flamarion: “It’s really the beginning in Asia… but when you arrive 20 years after, it’s late.”