DBS Group Holdings Ltd. is looking to cash in on the boom in private credit by originating and distributing deals, according to the global head of fixed income at Southeast Asia’s largest bank.
While the company is looking to pair up clients with private credit providers, it will steer clear of doing direct lending transactions itself to avoid conflicts of interest, Clifford Lee, a managing director, said in an interview.
“Do we keep what’s best and sell what’s worse? There’ll always be that mindset if you are both an investor as well as a distributor of credit,” Lee said earlier this month, and confirmed the comments on Friday. Given the very different risk profile of depositors and private credit investors, “the bank can come in at a more senior level. This way, we are not clashing.”
Firms from outside the banking industry have stepped in to fill a gap left by traditional lenders who were subjected to stricter regulation in the aftermath of the 2008 financial crisis. Global banks are now rushing to gain a foothold in the US$1.6 trillion ($2.14 trillion) private debt market, which often involves lending to less credit-worthy firms.
DBS invested US$200 million with Muzinich & Co.’s first Asia private credit fund earlier this year, and Lee said that will allow the Singapore-based bank to tap into the sector via a fund managed by a professional investor.
The investment also gives the bank a seat in the fund’s investment committee, of which Lee is a member. The bank will not vote on deals it originates, allowing the Muzinich fund to remain independent, Lee said.
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Banks in Asia are flush with cash and may be able to lend at rates cheaper than their private credit rivals, Lee said.
“Increasingly in cases where the structure is clear, such as in the case of a leverage buyout or real estate refinancing with high loan-to-value, banks are starting to step up,” he said. “This is specific to Asia.”
