NA: One of the key issues is that the Asian private debt market is not well researched, compared to the US and Europe; the consultants/analysts can get a lot more capital to work with in these regions, as Asia has been relatively small. Second, we don't have any proper market benchmarks to really benchmark performance. As more research comes in, this would make things easier for the investors. On the performing credit side, there is also a short track record unlike some other markets. Investors typically want to see 15-20 years through the cycles. To differentiate ourselves, we are totally focused on performing credit and we are one of the few regional players to provide these services, that helps us to position ourselves better. This also helps us on the sourcing side, as we are not seen as a distressed player. We think it's a much better place to be in and are optimistic about future prospects of performing credit. 

WY: We have the ability to tap into Temasek’s vast network to source a much more robust proprietary deal flow, so that we tend to be the sole lenders or the anchor lenders. Additionally, when we conduct our due diligence on a company, we can get access to our group’s broader operating companies that are operating in that country and get on-the-ground information in real time. Through this network, we have been able to find suitable opportunities even during COVID-19, keep a steady pace of investment and generate a superior risk-adjusted return. This helps us to continuously be in the market to source deals and execute, positioning us as a first port of call with borrowers or intermediaries due to the continuity of capital availability.

NA: We’re a big believer in a regional platform and investing regionally, we have about 60 percent invested in India and Southeast Asia. We focus on medium-term loans and hence we don't go beyond a five-year strategy as the risk becomes too high. As Asia is not a homogeneous market, there are different legal systems, regulatory approvals and security packages, so the focus is on what works, country-by-country. Execution times are longer due to cross-border jurisdictions involved, which adds to the deal complexity. In Asia, it’s bespoke and customized, so that obviously needs more resources, longer time to execute and is more complex.

WY: On constructing our portfolios, we focus on each specific transaction, look into the credit fundamentals of borrowers, as well as ESG factors to make sure that they pass certain ESG metrics. We develop a core underwriting thesis for these transactions and figure out a way to verify or test the thesis. Due diligence processes are put in place to cover the commercial, financial and legal sides as well as looking for downside protections against the identifiable and potential risks. Plus, we craft a deal structure to make sure that all the elements needed are put into a tight framework and include a post-deal monitoring process with borrowers. For portfolio construction, we aim to diversify, ensuring that no single country/industry becomes too large in the portfolio. In general, a transaction in Asia in terms of investment, from maturity to exit, typically has a two-year timeframe.

WY: One common perception is that private credit return should be lower than private equity fund return. During a benchmarking exercise, we found that we outperformed quite a lot of global private equity funds. In general, the return generated in Asia has been much higher than the US and European market. Many people think that Asia is a developing market, so the risk is higher. However, Asia is a fragmented market. If you understand the market, find the right partners, put in a deal structure that makes sense, understand the regulatory requirements, a relevant enforcement mechanism – and put all these elements upfront into the deal to protect yourself and the principal – the risk is manageable.

NA: Investors have a big misconception that Asia is very risky. Yes, there are more distressed special situations, where risks are higher, but there are also lower-risk pockets where you can do direct lending, where risk is more manageable. Asia has changed a great deal. Since the Asian financial crisis, economies are now bigger, robust and diversified. Many countries have taken significant steps to improve their legal frameworks, making it easier for creditors to enforce, in terms of certainty of judgments and the timetable in which the judgments can be delivered. This has helped improve our position as creditors. 

WY: First, it’s the track record of the fund and consistencies over a business cycle – not just good times, but bad times as well. Second, it’s trying to identify team members that contribute to the historical track record and the stability of the team’s composition to make sure that the underwriting thesis can continue. Finally, look at the team's ability to manage weak or non-performing investments – have they followed it up closely, been timely and taken effective actions to manage debt situations? 

NA: One of the key factors for our success is sourcing. A team that has sourcing networks will have stronger deal flows and will do better. Local knowledge is also very important, as what may work on paper may not work in practice. A lack of investment discipline – the pressure to deploy capital, do things that are on the edge – can lead to a slippery slope. Finally, it's all about numbers, as they speak for themselves.