SINGAPORE (June 11): Azalea Investment Management, a Temasek Holdings subsidiary, has launched what is believed to be the world’s first listed private-equity bond for retail investors. Previously, private-equity investments were almost exclusively the domain of sophisticated investors and institutions. Bonds sold locally had to be in tranches of at least $200,000. The Astrea IV Bonds, as the offering is called, will be available for subscription at a minimum of $2,000 each.

For Azalea, which was set up in 2015, the key point of launching this new product is not so much to raise capital as it is to introduce a new asset class to the market for retail investors. “This is not a leveraging exercise; it is really about bringing the product to the marketplace,” says Margaret Lui, CEO of Azalea, at the media briefing on June 5.

The listing of a retail bond that specialises in private-equity investments will add more variety to a stock market characterised as being increasingly hogged by the dozens of real estate investment trusts, whose units investors tend to buy and hold, instead of actively trade.

The point of adding more variety was made by Temasek CEO Ho Ching at an event on June 4. She noted that institutional investors were already enjoying access to private-equity investments — but not the “broad masses”. “By creating a product which is diversified, and therefore provides a better risk-adjusted return for the individual, we can bring a new category of product to the market for the retail investor,” she said.

The Astrea IV PE Bonds is the fourth in the series, but the first to be offered to retail investors. The first two in the series were launched by parent company Temasek Holdings, while the third and fourth were launched by Azalea. Of a total offer size of US$501 million ($667 million), the public can apply for $121 million offered under the Class A-1 Bonds, which carries an interest rate of 4.35% and has a call date on June 14, 2023 and a maturity date on June 14, 2028. An equal-size tranche of $121 million has already been fully taken up by institutional investors. The Class A-1 Bonds have a loan-tovalue ratio of 16.5%.

The total offer consists of two other tranches, which are limited to institutional investors. The Class A-2 Bonds has a size of US$210 million and carries an interest of 5.5%; the US$110 million Class B Bonds is offering 6.75%. Both tranches will mature on June 14, 2028 as well.

Chue En Yaw, Azalea’s managing director and head of private-equity funds, observes that private equity as an investment class has outperformed the general public market. “This is an asset class that we felt couldn’t be ignored, and it is an asset class that has performed well and generated good returns for investors,” he says.

The Astrea IV Bonds is backed by cash flows from a US$1.1 billion portfolio of 36 private-equity funds, which are managed by 27 private-equity managers, thereby ensuring that there is no concentration risk in case any of the funds go sour. The money is invested in about 600 portfolio companies, of which 62% are in the US and the rest almost equally divided between Europe and Asia. There is also plenty of sector diversification: IT holds the largest proportion in terms of net asset value, at 22.9%, followed by consumer discretion at 21.3%. Industrials, healthcare and financials make up another 10.2% to 11.9%.

Within Astrea IV, the largest fund in terms of net asset value is the Blackstone Capital Partners VI, with 9.2%. The other fund managers are also established names in the industry, including Apollo, Carlyle, KKR, Silver Lake Partners and TPG Partners. “These are funds that have gone through economic cycles and continued to raise new capital. These are managers with good track records,” says Chue.

The lead managers and underwriters of this issue are DBS, Standard Chartered and Credit Suisse. Application has opened and will close on June 12. Trading will start on June 18.

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