Alpin Mehta, head of private equity solutions at Temasek Partnership Solutions (TPS), says that private credit provides more diversification and resilience to earnings, and is an “important” part of Temasek’s portfolio. “Our focus there is to build a portfolio which is diversified across sectors, across markets, but also diversified across corporate lending, asset-backed financing, as well as real estate financing,” he explains. “What we like about that is that it offers us a very, very attractive risk-adjusted return with significant downside protection and equity subordination.”
A subsidiary of Temasek, TPS was established in 2025 to manage Temasek’s partnerships, funds, and asset management companies (PFAs) portfolio. TPS focuses on managing capital allocation to funds and building strategic relationships. It also works with sibling company Seviora Holdings (Seviora) as its main asset management platform to deepen and grow asset management capabilities, scale capital and access specialised strategies.
In total, TPS manages 19% of Temasek’s portfolio. The rest of the portfolio comprises 43% in Singapore-based Temasek Portfolio Companies (TPCs) managed by Temasek Singapore and 38% in global direct investments (GDIs) managed by Temasek Global Investments. Temasek’s stated allocation for TPCs, GDIs and PFAs is 40:40:20, respectively. This approximate distribution has remained mostly consistent since 2018.
Besides diversification, private credit also provides yield and is cash-generating. The portfolio of Aranda Principal Strategies, Temasek’s private credit platform, has grown from $10 billion in 2024 to $13 billion at present, generating more than $1 billion in annual recurring income. “[A] large part of our income in that strategy also comes from cash income that allows us to de-risk and hence provide more resilience to our portfolio,” adds Mehta.
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For him, Temasek has been investing in private credit for more than a decade through a few market cycles. He believes that the portfolio has performed “very well” and it still continues to perform well.
Private credit concerns
In recent quarters, several private credit funds, including those from Ares Management, Blue Owl Capital and Morgan Stanley, among others, experienced double-digit percentage point redemption requests from investors. However, redemptions were capped at 5% of the funds, sparking concern about investment liquidity.
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The Edge Singapore understands that some private credit funds — in particular, private business development companies (BDCs) that invest in privately negotiated debt of middle-market companies — offer redemptions where fund withdrawals are capped at 5% of net asset value per quarter by design, preventing fire sales of assets and protecting investors. These funds were designed to offer a certain level of liquidity in an illiquid structure.
According to Michael Arougheti, co-founder and CEO of Ares Management, the recent high level of redemptions in private credit means that investors are treating private credit as fully liquid investments when they are not. “Meeting the contractual 5% is exactly what the structures were designed to do,” says Arougheti in a May Top of Mind podcast.
He adds that redemptions are fulfilled by selling liquid securities such as loans, bonds or high-grade investments as well as through credit facilities. “Those two features are prominent because you don’t want to be in a position to liquidate private assets below their intrinsic value,” he adds. “So there is no asset liability mismatch, there is no run on the bank in these funds.”
Petra Salesny, managing partner and chief commercial officer at Amundi Alpha Associates, reckons that the spike in redemption requests is a signal of investor sentiment and not, on its own, evidence of credit deterioration. “Now, what has happened a lot is large withdrawals of retail investors in US BDCs and a lot of it was sentiment-driven, because so far we haven’t really seen negative developments in private debt in Europe,” she tells The Edge Singapore at the Amundi World Investment Forum. “In private debt portfolios focused on mid-market financings, we have not seen any increase in default rates or watch-list credits [and] so far we don’t see a fundamental issue in the private debt industry.”
Meanwhile, Georgina Tzanetos, director of content at Chartered Alternative Investment Analyst (CAIA) Association, suggests that the main issue is private credit’s opacity — private credit loans are held at par, and borrowers do not publicly disclose earnings. “Deteriorations in a borrower’s business model may not surface in stated valuations until a covenant breach or maturity event forces it — and by then, the options have narrowed considerably,” she states in an April article on the CAIA website.
A contrarian take
Elaborating on Temasek’s contrarian take on private credit, Mehta says that recent mass redemption events from private credit funds were a feature of private credit — a traditionally illiquid instrument — in line with other market observers.
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He adds that since Temasek has a longer investment horizon and a different liquidity profile from other investors, it is not affected by volatility and is able to have “differentiated” access to the market. “Periods like this offer us a very interesting opportunity to go in and lean into the market and deploy capital in very select assets,” says Mehta. “We’ve been buying some of the portfolios where we can pick and choose the risk that we like and things that we like within those portfolios.”
Chia Song Hwee, CEO of Temasek Global Investments, provides more clarity on how Temasek invests in the space while also cautioning against assuming the private credit market to be homogeneous. “Private credit is a very wide space, so we just need to be careful not to generalise while we are in private credit, but our targeted area — how we want to deploy capital — is actually quite strict.”
He reiterates diversification as part of risk management and says that private credit investment is “a lot easier” than equities, as there are indicators that can clearly signal when the market is too high. “If the market is lofty, your spread tightens very quickly, and if the spread is too tight, then you know that risk is probably not adequately priced,” he adds. “And also the terms — if you have very high loan-to-value or loans [without] high-quality collateral, that’s when you need to be really careful.”
Chia adds that Temasek’s private credit investments are cash-yielding, which is a signal of quality. “If we start seeing that we cannot get a deal done without a cash component, then there’s a signal that we need to be worried about, but so far we’re not sitting there.” He adds that these types of signals may not be available in the equity market.
Providing an alternative view from the sell-side, Seviora CEO Gabriel Lim says that not all private credit products are the same. He notes that some of the private market products that have been in the news are covenant-lite, while Seviora’s products generally have strong covenants as well as having good collateral backing the underlying assets.
In private credit, covenant-lite loans lack traditional financial maintenance covenants — such as maximum leverage or minimum interest coverage ratios — that require borrowers to continuously prove their financial health. This gives borrowers significant operational flexibility but increases risk and diminishes recovery rates for lenders.
Lim believes that private credit is still a good asset class worthy of investing in as long as investment selectivity, discipline and proper product structure are adhered to.
Earning money through private equity and investment
According to Temasek’s annual report, around 72% of TPS’s assets are in partnerships and funds, while the remainder are in asset management companies (AMCs) of which some, such as Azalea, are managed by Seviora. Some of Temasek’s partners include asset managers Brookfield, Global Infrastructure Partners and EQT.
Mehta says that for Temasek’s private equity business, its money-making strategy is to offer comprehensive capital solutions to its general partners in terms of investing in their funds as a limited partner. This includes doing larger co-investments, which encompass syndicating as well as co-underwriting with them.
A second prong of the private equity strategy is to build strategic relationships with partners to seed new businesses, says Mehta. This approach is embodied by Indian renewable energy developer O2 Power, which was established by EQT Infrastructure and Temasek in 2020.
Since its inception, the company has secured a total capacity of 4.7 gigawatt (GW), with 2.3GW expected to be operational by June 2025. EQT Infrastructure and Temasek completed the divestment of O2 Power to JSW Neo Energy in April 2025 for US$1.5 billion ($1.94 billion) and presumably reaped a decent profit.
While demonstrating success, Temasek is not resting on its laurels as it seeks to enhance its investment capabilities. Over the past year, Temasek has sought to strengthen its alternatives platform, including amalgamating Pavilion Capital into Seviora Capital, investing in Nuveen Capital and forming a strategic partnership with L Catterton.
Meanwhile, two AMCs — 65 Equity Partners and Fullerton Fund Management — were appointed fund managers of the second $1.5 billion tranche of the Anchor Fund (Anchor Fund 2). In particular, 65 Equity Partners will provide growth capital and strategic expertise to promising late-stage companies to prepare them for public listings.
Overall, the PFAs segment has an internal rate of return of 7.7% over the last 10 years.
“With valuations elevated and exits taking longer, what sets managers apart is operational depth and disciplined capital deployment,” says Mehta. “Our diversified portfolio of fund managers across geographies, sectors and strategies is a valuable source of proprietary insights and deal flow that benefits investment teams across Temasek, including Temasek Global Investments and Temasek Singapore.”
