Kilde’s Fountain of Finance #16 - 12 September

Kilde Announcements

• New Deals: Our deal team has been diligently working on issuing new SGD currency tranches, a popular choice among our esteemed investor community. On 15 September and 01 October, we’re unveiling a new tranche from Evergreen (based in the UK) and Fluid (based in SG), offering our select investors a unique and exclusive opportunity into private debt investing.?Head on to our website to learn more.
• Act Now: Besides Evergreen and Fluid, our team is actively working to issue new deals in the coming days. We strongly advise signing up and getting yourself accredited on Kilde to ensure you're among the first to know about and participate in the latest deals. Some deals get subscribed within 2-3 business days!
• Fresh New Site: Kilde product and IT team has reworked a fresh new site with visually appealing designs. Head on to our website to experience the fresh design. But that is not all; our tech team has more exciting updates as they have been working on improving site performance and delivering customer-friendly features on the platform.
• Security: We have stringent measures in place to ensure the safety of our investor's money. Your security is our top priority. Learn more about our robust security protocols here: https://www.kilde.sg/security

Kilde’s Industry Intel: Our Favorite Industry Report Roundups

The Future of Finance Unpacked: An Insightful Report on Embedded Finance

In the report, discover the secrets behind successful embedded finance strategies from industry leaders ABN AMRO Bank, KBC Bank, OpenPayd, and Rabobank. Here are the key takeaways that we learned:

• Embedded finance seamlessly integrates financial services into diverse business operations, marking a shift from traditional banking
• It's all about being present where clients are, on platforms they love, at moments that matter to them
• Collaboration, agility, and customer-centricity are guiding principles for the journey into embedded finance
• Cultural shifts, technological complexity, and compliance are the biggest challenges to overcome
• The future lies in further innovation and a customer-centric ethos

Embedded finance is not just a buzzword - it's a transformative evolution of the financial services landscape. Is your business ready?

Link to report: https://thebankingscene.com/resources/unveiling-the-future-of-finance-2

The Resilience of Private Credit in Private Market Asset Classes

Private markets have grown tremendously over the past decade, with private credit emerging as a star performer. Here are some critical insights from Apollo's latest Private Markets Outlook report:

• Private credit now makes up over 20% of total credit markets, up from just 3.9% in 2003.
• Global private credit AUM stands at $1.5 trillion, with $400 billion in dry powder ready to be deployed.?
• Private debt fundraising has scaled back among the general fundraising trends and a high portion of dry powder.
• Direct lending funds have delivered strong returns, outperforming the broader private capital market.?
• North America, followed by Europe, is the largest private credit market for fundraising and deployment. Asia plays a marginal role in comparison.
• As traditional lenders pull back amid economic uncertainty, private credit funds fill the financing gap. Private credit managers can capitalise on the current market dislocation by providing flexible, tailored solutions.

Link to report: https://www.apolloacademy.com/wp-content/uploads/2024/03/OutlookForPrivateMarkets-032224.pdf

Bay Area Leads in FinTech Funding

Despite the 63% drop in global FinTech funding in 2023, the US remains the top destination for VC dollars, with the Bay Area as the epicentre of innovation. American FinTechs attracted nearly 50% of the $42B deployed last year.

London holds the FinTech crown in Europe but still lags behind the US regarding total investment. The UK capital received five times less funding than its American counterparts.

Payments continue to reign supreme, attracting almost triple the funding of any other FinTech sub-sector. On the other end of the spectrum, crypto and banking startups saw the most significant decline in market share.

In WealthTech, alternative investments and financial advisory tools have taken centre stage, overshadowing the once-popular neo-broker trading apps. Wealth Management FinTech's new generation targets the lucrative high-net-worth segment, with an average annual revenue per user of $18K, compared to just $400-500 for retail clients.?

The FinTech landscape is evolving rapidly, with clear winners and losers emerging in the post-pandemic era. They are excited to see which startups will rise to the top in the coming years!

Link to report - https://dealroom.co/reports/the-state-of-fintech-2024-europe-us

Understanding Private Credit Terminology: A Comprehensive Guide to Private Debt Investing by Guggenheim

As an accredited or an institutional investor, here are some of the key terms we think you should be familiar with if you’re exploring private debt investing

Senior Loans

• First-lien secured loans mirroring syndicated bank loan structures
• Offer a smaller illiquidity premium compared to other private credit investments

Unitranche

• Combines senior and junior capital into a single loan
• Simplified structure preferred by borrowers for ease of amendments and acquisitions

Second Liens

• Secured debt subordinate to senior bank debt
• Typically, it offers a small amount of additional leverage behind the first lien loan.

Mezzanine

• Junior, unsecured capital often behind several turns of senior bank debt
• Typically fixed rate, occasionally with an equity co-investment component

Sponsored Transactions

• Done in partnership with a private equity firm
• Finances leveraged buyouts, growth equity investments, or dividend recapitalisations

Non-Sponsored Transactions

• Varies from small family businesses to public companies
• Often more complex due to a lack of transparent financials
• Rewards include higher pricing, better structural protections, and more excellent incumbency value

Understanding these nuances is critical to navigating the private credit landscape and making informed investment decisions. Link to report: https://www.guggenheiminvestments.com/perspectives/portfolio-strategy/investing-in-private-debt

Kilde’s latest scoop on Investing

Family Offices Make a Major Shift in Portfolio Strategies

According to J.P. Morgan's latest Global Family Office Report, these savvy investors now have a whopping 46% allocated to alternative investments like private equity, real estate, venture capital, hedge funds and private credit.?

Why the move away from public markets? Two key reasons:

• Higher potential returns. Family offices are taking advantage of the "liquidity premium" - getting paid more for locking up capital in the long term.
• Smoother ride. While stocks can be a rollercoaster, alternatives tend to have more gradual valuation changes. Less gut-wrenching volatility!

The trend is even more pronounced for larger US family offices, with over 49% in adults. Private equity is the most significant slice of the alternatives pie at 19%. Drilling into the average family office portfolio allocation, we see alternatives taking centre stage:

• 46% in other options overall (private equity, real estate, private credit, hedge funds)
• 22% in private equity (12% in PE funds, 10% in direct investments)
• 17% in real estate (14% direct investments, 3% funds)
• 4% in hedge funds
• 3% in private credit

Interestingly, private equity's 22% slice of the pie matches the public equity allocation, which shows how integral PE has become for sophisticated investors. Cash is 12%, and fixed income is 16%, so alts are the main event at 46% of assets. The key takeaway: Family offices remain committed to the long-term return potential of alternatives.

Many family office founders are entrepreneurs who relish taking ownership of private companies and sharing their expertise. Expect continued growth, especially in areas like private credit and digital infrastructure.

Reference: https://www-cnbc-com.cdn.ampproject.org/c/s/www.cnbc.com/amp/2024/04/29/family-offices-look-beyond-stocks-for-higher-return-less-volatility.html

Private Credit Market Surges Beyond $2 Trillion: Is Lack of Oversight a Looming Financial Crisis?

The private credit market, dominated by non-bank lenders, has seen explosive growth, reaching $2.1 trillion in 2024. ??

Institutional investors such as pension funds and insurance companies have eagerly invested in funds that, though illiquid, offered higher returns and less volatility than public investments.

While it has provided valuable financing to companies, its rapid expansion in an opaque and interconnected ecosystem is raising red flags. ??

Key risks to keep an eye on:

• Borrowers tend to be smaller and more indebted, vulnerable to rising rates
• Valuations are infrequent and subjective, masking potential losses
• Hidden leverage across multiple layers makes systemic risk hard to assess
• Significant interconnectedness with banks, pensions, and insurers
• Potential liquidity risks as retail investors enter the market

While not an immediate threat, unchecked growth could lead to defaults, losses, and liquidity strains in a severe downturn, with ripple effects across the economy.

Policymakers must adopt a more vigilant approach, enhancing supervision, addressing data gaps, and implementing tighter standards to safeguard financial stability.

The time to act is before hidden risks in private credit markets become tomorrow's systemic crisis.

Reference: https://www.imf.org/en/Blogs/Articles/2024/04/08/fast-growing-USD2-trillion-private-credit-market-warrants-closer-watch

A Contrarian Perspective on Investing in China

While many are wary of China's private markets, CPP Investments sees a unique opportunity. High-quality assets are becoming attractive in the private credit market with the current valuation gaps and reduced competition. This dislocation allows quick capital deployment, particularly in resilient sectors like real estate and industrial assets. Despite macro headwinds, strategic investments in China's private credit can yield equity-like returns with downside protection. Read the full scoop here: https://www.asianinvestor.net/article/cpp-investments-sees-growing-private-credit-plays-in-china/496160

About Kilde’s Fountain of Finance

Our editorial team at Kilde curates valuable insights into the private credit space to keep you updated on exciting developments. Subscribe now for free and stay informed!

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/

Disclaimer:

This newsletter is intended solely for accredited, professional, and institutional investors. It's important to note that this post does not offer investment advice or an invitation to invest in Kilde's products. Your financial decisions should be made with careful consideration and professional advice.