A new dawn for securitisations

Sister publication Secondaries Investor broke the news this week that Temasek’s asset management unit is ramping up to launch yet another private equity-backed securitised portfolio.

This will be the fourth time the Singaporean state-owned investment company has run such a process. In a collateralised fund obligation, an equity holder (such as Temasek) sells a portfolio to a new vehicle with a new manager, selecting which kinds of notes it wants to hold to extract liquidity by selling the equity to a new buyer.

The original holder can also keep the equity and instead issue debt to buyers through publicly listed bonds, as Temasek did with its Astrea III vehicle last year through subsidiaries.

One element of the deal that caught our eye was the fact that Temasek has also been acquiring stakes on the secondaries market to use as the collateral. Sources say this is new; previously we understand Temasek used assets from its existing portfolio.

Acquiring stakes to put in the portfolio highlights the civic element of these transactions. The last of these exercises was about more than just liquidity: it allowed Singaporeans to share directly in the investment firm’s portfolio. This time, it seems, the civic element is front and centre, with Temasek building a portfolio specifically to securitise.

With the likes of Temasek and potentially others building portfolios to use in a CFO, do these transactions pave the way for the Fidelities and BlackRocks of this world to create private equity-backed CFOs for a retail market? Would their presence add to an already competitive buyside landscape? The answer would have to be ‘perhaps’, but the prospect is still a long way off.

Another point to note on the Astrea IV deal is that it is in very early stages: while some form of a securitised portfolio is on the cards, Temasek hasn’t decided exactly what structure that will take.

The investment firm does not seem to be in a rush to decide on the structure – sources say the investor is unlikely to decide before Christmas and with Chinese New Year just around the corner in the first quarter, it is unlikely we will hear anything official until at least March.

That the S$275 billion ($202 billion; €173 billion) investor hasn’t decided what it plans to do is unsurprising – there are a raft of shapes the portfolio could take, from a single-tranche bond issuance to a multi-class tranche with notes in different currency denominations, to a private transaction, to something else altogether.

Many organisations are currently looking into these kinds of innovative structures because they allow greater flexibility, says Christian Diller, partner and co-founder at Montana Capital Partners which has experience in securitising portfolios.

“Investors do not have to sell their entire portfolio, but can decide to keep parts of it. In addition, they can lever it up or keep even parts of the senior notes. As a portfolio owner, you are free to do a little bit of everything,” he says. “These solutions allow a high degree of customisation.”

We’ll be watching the format of the next Astrea deal closesly: it could be the beginning of something big.