The local fund manager, part of the PhillipCapital Group, launched its second private credit fund on July 1, focused on providing short-term real estate-backed financing to SMEs.
The fund targets accredited and institutional investors, offering a stable income stream and capital preservation via a highly disciplined underwriting model. With the city-state’s non-bank lending penetration hovering below 15%, compared to over 60% in the US, as well as a US$2.5 trillion ($3.2 trillion) SME financing gap across Asia-Pacific, IFSAM believes it is well-positioned to capture growth in a market still in its early stages of maturity.
“Over the past couple of years, we’ve actually seen that the demand for private credit has grown significantly, not just from the borrower side, but also from the investor base,” says Charis Liau, chief investment officer at IFSAM. “Borrowers actually value speed. They do value flexible structures, and that’s the reason why private credit is a very attractive proposition for them.”
SMEs across Asia are often caught in a structural gap. They tend to be stuck in a situation where they are too small to meet the documentation and risk thresholds of commercial banks, yet they are too large to tap microfinance-type products.
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As traditional lenders become more restrained in extending credit for various reasons, private credit funds are stepping in to fill the gap. In Singapore, SMEs form over 98% of all businesses, yet face increasing hurdles when seeking growth or working capital.
“From an SME perspective, they would naturally go to the bank first. But because of the current growth engine that we are in, when opportunity arises, they will always be looking for additional, incremental sources of liquidity,” Liau says. “Private credit providers are able to serve them quickly in terms of speed as well as flexibility in structuring. So this combination of features is very complementary to what banks are doing.”
At the same time, investors are allocating more capital into private credit as they look to hedge against equity market volatility and generate steady, contractual returns. The strategy relies on short-duration loans, generally under 12 months. “Private credit, because it’s privately negotiated, always comes with stronger terms and conditions, including covenants and collateral. As a result, the portfolio is very stable and it provides a great diversification benefit to any investment portfolio,” she adds.
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Collateralised protection and capital preservation
IFSAM’s model centres on senior secured lending backed by collateral comprising Singapore’s residential, commercial and light industrial properties. These assets are independently valued and benefit from the city-state’s robust legal framework and transparent real estate market.
“From a risk management perspective, our philosophy is to focus on capital preservation… Singapore property is very resilient. You can get pricing very quickly. You can also sell relatively fast. There’s strong legal enforcement, and even during periods of economic stress, values tend to hold up well. So that gives us a lot of comfort,” says Liau.
In the event of a default, the lender holds first legal mortgage rights and can recover capital through asset sale, typically within six months. Diversification across borrowers and property types ensures that individual defaults have a limited impact on the overall portfolio. “The key is diversification. Their investment money is split across multiple loans. If one loan is repaid late, that’s manageable and it doesn’t significantly affect the fund.”.
The firm, of course, keeps close tabs throughout the loan lifecycle. “Once a loan is disbursed, we keep very close and first-hand contact with the borrower. If there are any signs of stress, we respond early,” says Liau, adding that this is the reason why IFSAM’s first fund had zero defaults or write-offs, she says.
All facilities are pegged to floating rates such as the Singapore Overnight Rate Average or Sora, and the short duration of the loans allows for frequent repricing, which protects returns in a fluctuating interest rate environment. “Most of our loans are under 12 months. This allows us to adapt to any rate changes,” Liau adds.
Borrower assessment is based on two pillars: ability to pay and willingness to pay. “In terms of ability, we look at their track record, cash flows and profitability. In terms of willingness, we assess the promoter’s history, governance and whether they are likely to honour their commitments,” adds Liau, emphasising that IFSAM also places value in the quality of the collateral.
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Boom in private credit
The second fund largely mirrors the first in structure and objectives, but includes a selective mandate to explore lending opportunities beyond the city-state. IFSAM will assess such deals only if assets are legally enforceable and valuation processes are transparent. The main focus remains on Singapore-based SMEs, where the team has deep origination experience and longstanding borrower relationships.
“We are entrenched here locally to support the local economy. There’s definitely a lot of room for growth, both on the borrower and investor sides,” Liau says. However, she shares that the fund will not be closed off to those outside of Singapore and looking for financing. IFSAM will assess these companies similarly and ensure that the collateral is of quality.
“Some SMEs are in fast-growing sectors or are part of supply chains that have been disrupted. We come in to provide timely support through flexible structures,” she adds.
Unlike public markets, which are prone to sentiment swings, private credit returns are generally stable, says Liau. “Even if nothing has changed in the company, public equity prices can fluctuate. Private credit offers a more predictable return profile due to its contractual nature.”
IFSAM anticipates strong growth in the city-state’s private credit market in the coming years. Singapore’s non-bank lending sector is still only around 30% of the total credit market. In the US, it’s 68%,” she says, while expecting accelerated issuance and deal flow over the next 12 to 24 months, as more corporates look to raise money through private credit. With the current rapid growth rate, Liau is also of the view that there could be a possibility for the non-bank lending sector to one day overtake the banks.
Investor participation is also expected to deepen. “Platforms are developing vehicles that allow wider access. As it becomes easier for investors to participate, more capital will be allocated,” says Liau.
“Our long-term vision is to make private credit more accessible and relevant. We’re working on structures with lower minimums and collaborating with digital platforms and wealth managers,” she adds.
Transparency and education will also play a key role. Liau says IFSAM is enhancing investor reporting through dashboards that show portfolio performance and risk metrics. “And we’re engaging in thought leadership so investors understand both the structured returns and the risks involved. Our goal is to help investors participate in private credit in an informed and measured way.”
For Liau, private credit is gaining traction across the region, and funds offer a “win-win solution” for both investors and SMEs. “Ultimately, it’s about protecting investors’ capital while helping real businesses grow.”
