Retail private equity bond offers 4.35% yearly interest

Temasek Holdings' unit, The Azalea Group, has launched its first private equity-backed bond for retail investors, where the retail tranche of Class A-1 bonds carries an annual interest rate of 4.35 per cent.

The total size of the A-1 tranche is $242 million. The retail tranche is about $121 million, while the other half is a placement tranche that was marketed to institutions and other accredited investors.

In total, the tranches open to institutions and accredited investors comprise $121 million of Class A-1 bonds, US$210 million (S$280 million) of Class A-2 bonds and US$110 million of Class B bonds. The issuer received a combined placement order book in excess of US$1.8 billion equivalent from over 100 accounts.

Class A-2 bonds carry an annual interest rate of 5.5 per cent and Class B bonds' interest rate is 6.75 per cent. Coupons are paid in six-month intervals.

The subscription period for retail investors begins today and closes on June 12. Retail investors can subscribe through ATMs with a minimum of $2,000. Astrea specialises in investments in private equity.

Earlier this week, Temasek Holdings chief executive Ho Ching referred to the Astrea IV - the fourth generation of Astrea private equity-backed securities - offering as a way to help enhance individuals' retirement savings. "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.

Private equity funds invest in private companies and are typically accessible only to ultra-high-net-worth clients or institutions, due to the high minimum investment required and a long lock-up period of up to 10 years. Performance among private equity funds varies widely. While industry data may show an attractive long-term rate of return in double digits, the chance of picking a poor-performing fund is high.

Azalea has sought to mitigate risk by investing in more mature funds that are likely to have begun to make distributions.

A number of safeguards are built into Astrea IV to instil confidence that the coupons and principal will be repaid. There is, for instance, a liquidity facility to cover senior payments and interest payments should there be cash-flow shortfalls.

Azalea Investment Management chief executive Margaret Lui said: "We are excited to bring this unique, ground-breaking investment product to the Singapore retail market... Over time, we hope to offer more innovative products based on private assets to investors."

On the transaction, Azalea Investment Management managing director and head of private equity funds Chue En Yaw said: "Astrea IV PE bonds are backed by cash flows from a quality portfolio of investments in 36 underlying PE funds managed by 27 fund managers. These underlying PE funds have a net asset value of US$1.1 billion, and are invested in 596 investee companies globally across multiple sectors. Such diversification reduces the risks associated with any investee company."