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Astrea 7 PE Bonds: What Do Investors Need to Know Before Buying?

Private equity Singapore bonds

Tim Phillips

May 21, 2022

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Amid all the sea of red in stock markets, a lot of investors have been looking to alternative assets – such as private equity – as a way to diversify out of public equities.

That has long been a strategy of big institutional investors, such as large national pension funds and endowments.

However, in recent years private equity (more commonly known as “PE”) assets are increasingly being made available to the regular retail investor.

In Singapore, a great example of this was the launch of the new Astrea 7 PE bonds from Temasek-backed Azalea Investment Management.

So, for investors who are interested in expanding into the PE asset class, what should they know about the latest Astrea 7 PE bonds that are being made available to the Singapore public?

Bonds but backed by Private Equity

First off, investors should know that these are bonds backed by PE assets, meaning investors will be paid a coupon (or interest rate) just like any other bond.

For the public, the offer of Astrea 7 PE bonds consists of Class A-1 bonds, totalling S$280 million, and Class B bonds that total US$100 million.

For Class A-1 bonds, the fixed interest rate is 4.125% per annum, higher than previous Astrea PE bond issuances.

Meanwhile, the Class B bonds – which carry a higher credit risk and are behind Class A-1 and A-2 bonds in terms of payment priority – give investors a higher interest rate of 6% per annum (see below).

Astrea 7 PE bonds Singapore

Source: Azalea Investment Management Astrea 7 PE Bonds investor presentation

In addition, the bond issuance (for both classes) is expected to have an investment-grade credit rating, with the A-1 bonds offering an A+sf rating while Class B bonds will have a BBB+sf rating from Fitch.

It should be noted by investors that this series of PE bonds is the first time – after four previous offerings to the retail market – that Astrea is providing two different tranches of PE bonds.

Diversified portfolio

So, what about the portfolio level exposure for investors? Well, anyone who buys these bonds will have underlying exposure to the US, Europe and Asian PE markets.

The split is tilted more towards the US given the global dominance of the PE market there, with the portfolio’s net asset value (NAV) split being 55% US, 27% Europe and 18% Asia.

The weighted average fund age is 5.3 years which bodes well for cash flows as more mature funds are able to distribute cash flow to investors sooner rather than later.

Moving to sector exposure, the investee companies are primarily in the IT sector (34%), followed by healthcare (19%) and consumer discretionary (12%).

How to buy them?

Application for both class of bonds can be carried out online, with applications open from 9am on Friday (20 May) and closing at noon on Wednesday 25 May.

In terms of the channels available for application, they can be done via the ATMs of DBS (including POSB), OCBC and UOB.

They can also be done online via the internet banking websites of all three banks. However, for applications done via the mobile banking apps, these are only available through DBS and UOB.

Applications must be done in multiples of $1,000 and do note that Class A-1 bonds are only available in Singapore dollars while Class-B bonds are only available in US Dollars.

An interesting diversifier

The latest series of Azalea Astrea 7 PE bonds offer an interesting opportunity for investors to diversify away from stocks and real estate in the current environment.

However, like any asset class, investors should consider the downsides of PE which include investee companies losing money or being unsuccessful.

Meanwhile, any major adverse changes to the macroeconomic environment could result in a fall in PE NAVs and have a knock-on effect on the bonds.

On the whole, though, it looks like an interesting opportunity for investors to gain some exposure to PE if they haven’t got any in their portfolio currently.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.