Inside the Astrea IV securitisation

Tapping retail investors is the next frontier for some blue-chip firms. Could collateralised fund obligations be the answer?

Private equity is typically the preserve of institutional investors, high-net-worth individuals and family offices. Temasek subsidiary Azalea Asset Management’s latest collateralised fund obligation – Astrea IV – has shaken up the status quo by opening up its bonds to retail investors for the first time.

The $501 million bond issuance was five times oversubscribed, which means the issuance could have raised $2.5 billion.

How it works

Azalea, a wholly owned subsidiary of the S$308 billion ($225.6 billion; €193 billion) Singaporean state-owned investment company, will use a portfolio comprising 36 fund stakes to generate cashflows for holders of the Astrea IV series of bonds, according to its prospectus.

In a collateralised fund obligation, the original owner can select which kinds of notes it wants to hold and extract liquidity by selling equity to a new buyer. The original holder can also keep equity and instead issue debt to buyers through publicly listed bonds, as Temasek did with previous vehicle Astrea III through subsidiary entities.

Astrea IV’s bond offering in June comprised S$242 million of Class A-1 bonds, $210 million of A-2 and $110 million of class B, running from highest to lowest in terms of credit quality.

A demanding audience

Investor appetite was voracious. The Class A-1 bonds, of which S$121 million was available to available to retail investors from S$2,000 and up, generated nearly S$890 million in valid applications – a 7.4 times oversubscription rate.

Rather than turn away potential investors, Astrea IV ensured all 25,660 valid applicants received some allocation. All applicants who applied for S$4,000 or less were granted full allocations, while 65 percent of the bonds were allocated to applicants who subscribed for S$30,000 or less.

Astrea IV was also popular among larger investors. Institutions received 60 percent of the bonds, accredited investors received 22 percent and retail players accounted for 18 percent.

A strong pedigree

While mega-funds often require substantial minimum commitments, excluding retail investors, Astrea IV offers bond holders access to some of private equity’s biggest names.

The portfolio comprises private equity, growth equity and private debt vehicles, representing a $1.1 billion net asset value of funded commitments and $168 million of unfunded capital commitments as of 14 June, according to Fitch Ratings.

Funds managed by Blackstone accounted for the largest proportion of the portfolio’s net asset value at 10.6 percent. Silver Lake Partners and PAG Asia funds account for 8 percent and 6.9 percent, respectively. The largest single fund position is Blackstone Capital Partners VI, a $16.4 billion 2011-vintage buyout fund.

Setting the tone

Tapping retail investors marks the next frontier for some blue-chip firms.

Blackstone has been working on growing its retail platform, which represented 18 percent of the firm’s total $387.4 billion assets under management at the end of Q3 2017. In October, HarbourVest Partners appointed a managing director to focus on business development in response to heightened interest from private wealth investors.

– Rod James and Adam Le contributed to this report.