Kilde’s Fountain of Finance #11 - 26 April

Greetings!

In this newsletter edition, we have compiled reports on the major forces reshaping private markets, insights into private credit investments, and an analysis of the macroeconomic tailwinds expected in 2024.?

Additionally, we delve into the industry's excitement surrounding the private credit boom, the dynamic shifts in the private equity landscape, and exciting developments in European private credit.

We hope you enjoy the read!

Kilde’s Industry Intel: Our Favourite Industry Report Round-ups

Five Megaforces Reshaping Private Markets?

• Private markets are undergoing major transformations driven by megaforces like digital disruption, the low-carbon transition, changing demographics and more. These provide significant opportunities across private equity, real estate, infrastructure, and private debt.
• As artificial intelligence and digital solutions permeate the economy, tech is an attractive sector for private equity, with companies having recurring revenue streams from areas like cloud computing.
• Demographic changes underpin growth in real estate property types like senior housing as ageing boomers drive demand. Younger millennials entering family formation spur needs like rental housing.
• Decarbonisation makes clean energy infrastructure essential, while electrification creates massive battery storage needs, opening infrastructure opportunities.
• The future of finance megaforce expands private debt's addressable market as structural shifts by banks and public markets create openings.

While megaforces drive change, private markets' ability to provide flexible capital and target exposures positions them to harness the opportunities. Identifying the right trends early will be key for investors.

Link to report: https://www.blackrock.com/sa/professional/en/insights/private-markets-outlook#:~:text=Despite%20continuing%20uncertainty%2C%20we%20are,of%20finance%20and%20geopolitical%20fragmentation .

Insights on Private Credit Investments by Asia-Pacific Family Offices in 2023

The Campden Wealth Asia-Pacific Family Office Report 2023 provides insights into private credit investments by family offices in the region. Some key points:

• Private debt became a constant component of Asia-Pacific family office portfolios, making up 3% of assets under management on average. This aligns with the global average for family offices.
• In 2022, private debt returned 4% for Asia-Pacific family offices around the same return achieved with public bonds
• Within their private debt allocations, most family offices (39%) pursue direct active investments in companies. Twenty-five percent invest through private debt funds. The remaining portion is split between co-investments, passive direct investments, and secondaries.
• When investing directly, the most popular private debt strategy is growth capital, employed by 35% of family offices. Venture debt is also popular at 23%. Buyouts and special situations are less common. ?
• About 75% of Asia-Pacific family offices believe that as investors become more risk-averse, borrowers will need to make greater efforts to secure funding. This trend benefits private credit providers able to structure customized financing solutions.
• Over half of family offices view private debt as more attractive now, since the 2022 downturn has brought valuations to more reasonable levels.

Overall, the report shows private debt remains an integral component of Asia-Pacific family office portfolios. Although returns moderated in 2022, the asset class is expected to continue expanding as tighter bank lending increases demand for alternative funding sources. Family offices see ongoing opportunities in this market.

Link to report: https://www.campdenwealth.com/report/asia-pacific-family-office-report-2023

Navigating the Economic Landscape of 2024: Shifting Winds and Brighter Skies ahead

Geopolitics have been the wild card in the markets in 2023. ?Lazard Global Outlook 2024 pays more attention to geopolitics in the report.

In 2023, the US economy stayed resilient as consumers used up their pandemic savings. China stumbled due to its real estate crisis. Europe dealt with stagflation from the energy crisis. Japan kept growing above potential with negative rates. Geopolitical conflicts added uncertainty.

But for 2024:

• Inflation should keep falling back to the 2% target. The Fed and other central banks likely finished hiking rates.?
• The US economy may avoid a recession through a "soft landing". China's economy could rebound once real estate stabilises.
• Europe risks recession from rate hikes and war impact. But disinflation progress should bring relief. ?
• Japan will likely end its yield curve control policy. Its tight labour market supports the case to remove negative rates, too.?
• However, geopolitical tensions around Ukraine, the Middle East, and Taiwan seem set to continue weighing on growth.?

The winds are shifting more favourably overall. But risks like geopolitics, high rates, and supply chain shifts will remain. As always, navigation will require skill. But the economic skies ahead look brighter than the stormy 2023. Set your sails to catch the shifting winds in 2024!

Link to report: https://www.lazard.com/research-insights/global-outlook-2024/

Kilde’s latest scoop on Investing

Is this the end of a golden era for the direct lending boom??

Private credit has experienced significant growth in the last decade, with AUM increasing from $95B to over $550B. The asset class has been a valuable resource for private equity, providing funding for large buyouts. Direct lending funds have even taken over from banks in underwriting billion-dollar loans.

However, the prosperous days appear to be waning. Returns are decreasing from the peak of 12% to single digits. Deal flow is slowing down as corporate borrowers and sponsors revert to traditional lenders.

What does the future hold for private credit? Will it continue to allure yield-seeking investors, or will it retreat to its niche position?

We believe Asset Backed Financing will be the next golden goose of private credit. Coincidentally, receivables financing is the product we are offering at Kilde .

Reference: https://www.bloomberg.com/opinion/articles/2024-03-13/private-credit-has-had-its-15-minutes-of-fame

The private equity landscape in 2023: A rollercoaster ride

Global fundraising fell 22% across private equity classes to just over $1 trillion in 2023 according to McKinsey's latest research. Buyout strategies had their best fundraising year ever, but VC fundraising declined nearly 60% to 2015 levels.?

Buyout deal volume declined 19% but was still the 3rd most active year on record. Entry multiples contracted by approximately 1 turn from 11.9x to 11.0x EBITDA. Buyout funds returned 5% in the first 9 months of 2023 - still low but an improvement! VC funds returned -3% over the same period, marking 7 consecutive quarters of negative returns.?

The glory days of 2010-2022 where VC significantly outperformed seem to be over. Private debt remained resilient with only a 13% fundraising decline. Returns were the highest across private asset classes in 2023. Floating rate exposure helped debt funds capitalize on rising rates. Real estate struggled with falling demand, slowing rent growth, and higher rates. Fundraising fell 34% and returns were negative for the first time since the GFC. Infrastructure fundraising declined 53% but should bounce back given LPs remain bullish on deployment. Overall a turbulent year in private markets!?

Reference: https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/mckinseys-private-markets-annual-review

Exciting Update in Europe Regarding Private Credit

Goldman Sachs Asset Management has launched its first European private credit fund aimed at wealthy individuals - called GSEC.

The senior debt fund has already raised over €550 million from investors and provides loans to mid and large-sized European companies, typically in non-cyclical industries. It has already invested in 23 companies so far.

This shows the continuing expansion of private credit into the realm of individual investors, beyond just institutions. More opportunities for high net-worth individuals to access this growing asset class.

Reference: https://www.bloomberg.com/news/articles/2024-02-21/goldman-sachs-am-launches-private-credit-fund-for-europe-s-rich

About Kilde’s Fountain of Finance

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About Kilde

Kilde is an investment platform tailored for individuals and institutions, providing access to private credit deals supported by cash-generating assets. We offer up to 13.5% annual returns to our investors, surpassing similar risk investments yielding around 8%. We are licensed by the Monetary Authority of Singapore. Find out more: https://www.kilde.sg/